It’s only natural that you want your future to be secure, and one of the best ways to ensure you can rest easy when it comes to your financial situation is by setting up a retirement savings plan (RSP).
We’re here to help you determine whether this form of saving is right for you.
How does a retirement savings plan work?
A retirement savings plan (or RSP) is an investment account primarily designed for saving up for retirement. It is a Canadian government-regulated program that offers particular benefits. When you put money into an RSP, that amount is no longer considered part of your taxable income, which means you can pay less income tax now and save more for the future. The money in your RSP is tax deferred, and you pay tax only on the amounts you withdraw.
When you spend your life working hard each and every day, the prospect of enjoying a comfortable, secure and relaxed retirement is a nice one. An RSP can help make that vision of the future come true. Each person has an eligible contribution level that can be invested in an RSP to decrease his or her taxable income. The more you contribute, the less you’ll have to pay in income tax — and that helps you save more for your future! To find out your eligible contribution value, contact the Canada Revenue Agency at 1-800-959-8281.
What if you need the money sooner?
Don’t worry; the money you’re saving up is never completely out of reach if you happen to require it sooner. For instance, the Home Buyers’ Plan allows you to withdraw up to $25,000 for a qualifying home purchase without having to pay income tax on the money you take out. Similarly, if you choose to go back to school, you can withdraw $20,000, income tax-free, through the Lifelong Learning Plan. For other withdrawals, however, the amount you remove will be subject to taxes and investment terms. Your money is always available to you, but it’s important that you fully understand the terms of your RSP before signing on so you don’t wind up regretting it down the road.
What happens at the end of it all?
The most common way to make use of your RSP once you’ve retired is to convert it into a retirement income fund (RIF). Funds are transferred from your RSP to your RIF before you turn 71, and when you retire, it begins making payments to you. You can also choose to withdraw the amount in cash, but if you do, you must pay income tax on the year in which it was withdrawn. See a financial advisor to get a better sense of what system will work best for you down the road.
Getting all the information you need
The important thing to remember is that saving for retirement is unique to each individual. Everyone has a different lifestyle and different needs, so don’t be afraid to visit your local bank and ask as many questions as you need to until you feel comfortable with your decision. Different banks offer different forms of RSPs with different pros and cons, so it’s worth it to look around. You can even start your research right away by checking out TD Canada Trust’s retirement savings calculator, which will help you determine how you can be most successful with your savings. And if you have any questions, you can always check out the bank’s online TD Helps section to get answers from experts from the comfort of your home. Saving for your future is an important step, so make sure you know all your options, and pick a form of saving that works best for you.