Welcome to 2017 and the start of a whole new year. Hopefully 2016 met with all your expectations. At Fiscal Performance we are gearing up for the year to come and the season that is now upon us. One major item of business for us is to expedite T4s to all of the clients that we take care of payroll for. Speaking of which, at this time of year many people start to think about the personal tax season ahead and how to best manage it. For a long time now, the prudent use of RRSPs has been one way to optimize your tax situation.
To put it in simplest terms, an RRSP or Registered Retirement Savings Plan is a legitimate way for Canadians to park money that they have earned during the year into an account that shelters it from government taxation. The taxation doesn’t occur until it is withdrawn some time down the road. The idea is that the money stays put in the account during higher earning years and isn’t taxed until retirement when, presumably, earned income is a whole lot less. This money is now taxed at a lower rate as a result of the lower overall income that most people would realize when they are no longer in the mainstream workforce.
Some people think that the purpose of an RRSP is to eliminate taxes owing in a given year altogether. This is wishful thinking. In almost all cases, the money put into an RRSP will help to reduce taxes owing – not eliminate them. There are limits on the amount that can be deposited into such an account each year. Your best bet is to check with your personal tax specialist to see what can be done and the limits involved. Keep in mind that RRSP’s are only one of the tax strategies your tax specialist can use to minimize your taxes owing. The ultimate goal is to pay the least amount legitimately owed to government.
Besides the tax advantages, another purpose of an RRSP is to help build and have enough money to retire on. It is, and should be, a part of your savings and retirement strategy as you go forward from year to year. This is financial planning and it is something we should all be considering and acting on.
Prudent use of an RRSP is one way to build a nest egg for a happy and comfortable retirement. Understanding what it is all about is a good first step to putting this process in place.
Happy 2017!
Tracy