Building A Better Future

If you’re a new Canadian, you undoubtedly came here with many hopes and dreams for you and your children’s future. And to realize those dreams, you should give some thought to saving for your retirement years. But saving for the future can feel out of reach after first landing in Canada because you have so many other financial priorities, such as buying a new home or saving for your children’s education.

The good news is that there are tools that can help: the most important of all is a Registered Retirement Savings Plan (RRSP), a personal savings plan that allows you to build a retirement income for your golden years while taking advantage of immediate tax benefits today.

“The concept is simple,” says Mandy Dhinsa, an RBC Royal Bank branch manager in Brampton. “You invest in an RRSP and your money grows tax-sheltered until it is withdrawn. The RRSP must be closed and paid out as a retirement income by the end of the year in which you reach age 71. You will then begin paying taxes on the funds.”

Only after the money is withdrawn will you begin paying taxes on the funds. “But chances are you may be in a lower-income tax bracket in your early 70s, so you will likely not be as heavily taxed as you may have been during the period you originally made the contributions,” adds Dhinsa. Even if that isn’t the case, years of tax deferral allows you to earn extra income at the government’s expense.

It’s never too early to start

In order to take full advantage of an RRSP, you will want to begin making contributions as soon as possible, no matter what your age or how close you are to retirement. That’s because the money you put in the plan begins to grow on a tax-deferred basis immediately.

Growth without having to pay taxes immediately isn’t the only benefit to investing in an RRSP; contributions to your plan also reduce your current taxable income for the year.

Shekher Puri, an RBC Royal Bank branch manager in Mississauga, explains further: “The contributions you make reduce your current taxable income for the year. Sometimes this allows you to pay less tax and in numerous cases you actually get a refund back.”

For example, someone in Ontario earning $50,000 a year will get a little more than $300 back for a $1,000 RRSP contribution. “That’s money in your pocket now,” he says.