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RRSP Q & A

Everything you ever needed to know about RRSPs!

RRSP’s and mortgages you may ask? Here is a Q & A to answer all your questions!

  1. What is an RRSP?

An RRSP is a Registered Retirement Savings Plan that is offered by the Canadian Federal Government.  It is a savings plan that allows you to save for the future, your retirement and at the same time gives you income tax breaks.

  1. What is an RRSP loan, why would do it and how can it benefit you?

An RRSP loan is essentially what it sounds like. It is a loan taken out that so that you may start your pension plan with a lump sum of money that you will pay for over time. Interest on these loans is usually lower than on an ordinary loan and depends on the Prime Rate. The formula for calculating interest on an RRSP loan is Prime Rate + 0.5% (presently 2.75 + 0.5 = 3.25%)

If you would like to lower your taxable income for the year (there for pay less taxes for the year) but for whatever reason do not have the funds available to contribute into an RRSP, you can borrow the money as a RRSP loan and invest this amount into the pension plan RRSP. This RRSP loan can also be used towards the purchase of your first time home.

  1. As a first time home buyer how much am I able to take out of my RRSPs? 

You are able to take out up to $25000, anything over $25K you will be taxed on.

  1. How long do I need to have my RRSPs before I can take them out?

Your investment funds must be sitting ‘vested’ in the account for 90 days before you are eligible to take them. 

  1. Can I take money out of my RRSP AFTER closing on my home? 

Yes! You may still take out funds from your RRSP up to 30 days after the closing date of the purchase of your first home.

  1. What form do you use for your RRSP withdrawal? 

We made it nice and easy for you – just click here!

  1. Are there any restrictions for using my RRSPs as a 1st time home buyer? Can I ever use it “again”?

You must intend to live in the house purchased with the first time home buyers plan RRSP withdrawal within one year of purchasing / closing on the home.  There is no minimum time that you have to stay in the house. If you are not on title of a home for over 4 years you are eligible to use the home buyers plan again. For example – you sell your existing home and start renting. After 4 years of renting you are eligible to use your RRSPs again.

  1. When and how much do I have to pay back? How do I pay it back?

You have 15 years tax-free to pay back the loan in its entirety – this can be done through regular contributions to your RRSPs at your banking institution.  If you don’t contribute throughout the year, your year-end taxes can be adjusted through the Home Buyer’s Plan to make the contribution

  1. When is the dead line for contributing to your RRSPs?

This year’s deadline is March 2nd 2015 for your 2014 tax year.   Each year the deadline changes every year but is usually 60 days into the new year. If you aren’t sure when it is you can always ask us!

  1. Spousal RRSP’swhat are they and how do they work?  

A spousal RRSP is where one spouse makes the contributions to their spouse’s account.  This benefits the spouse with the higher income as you can contribute to your spouse’s account therefore reducing your own taxable income.

  1. Does your RRSP withdrawal have to be directed towards the down payment of your purchase? 

For the first time homebuyers the money you take out does NOT need to be put directly toward the down payment. It may be used for any renovations, appliances or any furnishings you need for your new home.

  1. What’s the expected turnaround time for my RRSPs to be moved into my normal chequing account?

If your investments are with a banking institution (i.e. BMO, TD, RBC, Scotia Bank or CIBC) you are looking at a 4 – 5 day turn around period to have your funds in hand.  If you have RRSPs with Sun life or Manulife for example, the turnaround period can be as long as 2 weeks.

  1. What happens if you take RRSP money out that isn’t FTHBP (First Time Home Buyers Plan) eligible?  

You will have to pay the tax on the funds, just like you would if you were to take them out early for any other reason.  The tax consequence of taking them out early is between 10 to 30 percent depending on the amount withdrawn.

  1. Can I contribute as much as I want to my RRSPS or is there a limit? Where can I find my eligible amount that I can contribute and can I contribute over that amount?

The amount you can contribute to your RRSP’s is based on your income. You can find your eligible contribution amount on your previous years NOA (Notice of Assessment) You may contribute up to $2000 more than you are allowed before being taxed on it. If you contribute over your eligible amount you will have to pay a penalty of 1% of the amount over your limit.

For further questions please ask us and we can set you up with a financial planner to begin your retirement planning!

About the author...

Here to help inform, educate and represent you in the home financing process.

View all posts by James Loewen

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