Everything You Need to Know About the RRSP – Young Guys Finance

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Learn more about the RRSP and other tax tips here:
http://www.rrspandtaxtips.com

Learn more about CPABC and become a CPA today!
http://www.gocpabc.ca

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Hey guys, today we’re partnering with the Chartered Professional Accountants of British Columbia to talk to you about Registered Retirement Savings Plans, also known as RRSPs.

More specifically, how they work, how you can save taxes, and how to take advantage of this investment when you’re buying a home.

We’re excited to share with you CPABC’s free public resource: rrspandtaxtips.com.

On this website, you can find information on RRSPs, as well as income tax deductions and incentives you may be eligible for. This topic is one of our favourites!

An RRSP is one of two types of registered investment accounts, the other is called a TFSA. Within an RRSP, you can invest in financial products ranging from GICs, stocks, mutual funds, and index funds.

In order for you to be able to buy these types of investments, you’ll have to deposit some money or “contribute” to the account.

You have until the end of February each year to contribute towards your previous year’s RRSP amount, which is why banks heavily market RRSP contributions in the first two months of the year.

This is any money you received for working at a job or from being self-employed. Any dividend or interest income received is NOT considered earned income.

You can find your contribution limit by looking on your previous year’s Notice of Assessment, which you received when you filed your taxes. You can also go on CRA’s website to download an electronic copy.

As we mentioned in our previous RRSP vs TFSA video, an RRSP allows you to defer taxes by giving you a refund in the year you contribute.

And then, when it’s time to retire and withdraw your hard earned savings many years later, your withdrawals will be added to your income.

The idea is that you will make more money in your younger years, compared to when you retire.

So as you’re making more money now, you’re paying more taxes. This is why it’s beneficial to contribute to your RRSP to reduce your taxable income as your income increases.

For example, let’s say you’re working full time and considering making a $10,000 contribution to your RRSP.

Right now, let’s assume your average tax rate is 25%. Contributing $10,000 to your RRSP reduces your taxable income and will lessen your taxes you need to pay by $2,500.

When it comes time to withdraw that money when you retire, you might be in the lower tax bracket of 15%, meaning that $10,000 withdrawal is added to your taxable income and you will pay $1,500 in taxes.

This means you reduced your taxes owing overall by $1,000.

So contributing to your RRSP now, while you’re in a higher tax bracket will give you more money back compared to what you’ll pay when you withdraw.

There are two main programs that you can take advantage of when it comes to RRSPs.

The first one is called the Home Buyer’s Plan.

If you have money in your RRSP and need it to buy a home, the Government lets you withdraw a lump sum up to $25,000 without adding it to your taxable income, so you won’t be taxed on it.

The only catch is that you have to contribute back the amount you withdrew within a 15-year period.

If you don’t, a portion of that withdrawal will be added to your taxable income every year.

The second program is called the lifelong learning plan. If you want to pay for post-secondary education, you can withdraw up to $20,000 from your RRSP without tax consequences.

This is similar to the homebuyer plan, but requires you contribute back to your RRSP over 10 years.

The takeaway is, if you’re planning to buy a house or go back to school, it might be worthwhile to start investing in an RRSP before a TFSA.

Thanks again to CPABC for working with us to teach you guys about RRSPs today. For an in-depth guide to RRSPs and other tax tips, visit their website at rrspandtaxtips.com

Thanks for watching, be sure to like, comment, and subscribe!

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5 Comments

  1. Hi great video. I’m planning on buying my first home this year with my fiancé and I just had a quick question about the first time home buyers withdrawal. I currently have 25k in my TFSA – can I remove that entire amount and put it into an rrsp then withdraw it to use as a part of my down payment on the house?

  2. Ayy Justin! Glad to see some more vids. Keep em coming 🙂

  3. Ok this is not the real picture, RRSP makes you pay even more towards taxes when you withdraw on retirement. You showed the calculation based on 1 year of contribution. The people who contribute for the 30 years or more, end up paying 40 percent taxes on whole RRSP, suppose a person has accumulated total of $100000 in RRSP including growth and contribution, upon withdrawl, 40% will be deducted for taxes and he will be left with only 60,000. That's a rip off, he gets break on taxes when he was making contributions, but when its time to withdraw he is taxed 100% because the growth on his RRSP definitely puts him in higher tax bracket and he has to pay taxes on the whole amount of RRSP he is withdrawing.

  4. Great video ! Can you do a video of how to start a RRSP with Questrade ? Types of stocks to invest ?

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