Almost time to have your RRSP story closed off (although, you should be doing this all year around). You know my love for top 10 lists, (and evidently the correct cardinality of a financial list is 7) but, here are 5 things to remember about RRSPs.
Things to Remember about RRSPs
- Your RRSP balance is not how much money you have to withdraw. The RRSP program is a tax deferral savings system, you will have to pay taxes on your balance.
- If you take it all out at once, you will end up paying the highest tax rate on the withdrawal.
- Are you sure your tax rate when you withdraw the money is going to be lower than your current rate? You may not withdraw at retirement, what if you get laid-off? If you are not sure about the tax rate, is the RRSP is the right place to put your money?
- When you take money out of your RRSP, that RRSP “room” is lost (except for a few specific programs (e.g. 1st home purchases). Every year you are allocated RRSP room, but if you cash out before retirement, that room is lost.
- The Spousal RRSP is one of the few ways to income share. I have written countless posts about this, but if your spouse will have less retirement income, this is an important tax evasion tactic for Canadians.
- Always name a beneficiary for your RRSP (or any registered savings plan), to ensure a smooth and easy transferral should you die before you can spend it.
There are really not only 5 things to remember for RRSPs, there are many more, but here are five to start with.