Don’t miss the boat with RRSPs

Q: I am 28-years-old. Since graduation, I have worked
full time at the same employer. I would like to purchase a home in the
next year or two. Are there any tax benefits for contributions to RRSPs
before the deadline or should I put my savings for a home in a GIC? My
2007 year’s income is approximately $52,000.

— Todd, Toronto

A: Tis the season for the banks to be jolly! RRSP
season is upon us and taxpayers must make decisions if they should use
RRSP tax shelters to save for their retirement.

The more difficult decision probably would be, “How much should I borrow, from whom and at what cost?”

All the major banks and investment companies will be competing for your
RRSP dollar. Statistics Canada reported 6.2 million tax filers
contributed $32.4 billion to RRSPs in 2006. Do your research to
determine what type of investments to hold in your RRSP. RRSPs are not
like choosing a Quick Pick lottery ticket. Remember, this money is for
your retirement. So look for the best return on your RRSP dollar.

You can have your cake and eat it, save for a home, contribute to your
RRSP and get a tax deduction. Contributions to an RRSP are tax
deductible and eventual withdrawals under the first-time homebuyers
plan (or Lifelong Learning Plan — LLP) are not taxable when removed for
that purpose. Under the First-time Homebuyers Plan (HBP) you and your
spouse may withdraw up to $20,000 each for the purchase of a home. You
must begin repayments to your RRSP in 15 equal payments, starting in
the second year after the withdrawal.

Your deduction limit for 2007 is indicated on your 2006 Notice of
Assessment. Generally, the limit is 18 per cent of your 2006 year’s
earning ($19,000 less pension adjustments) plus any deduction room
carried forward from prior years.

If you have not made any contributions to an RRSP, you could be missing
out on a greater tax refund and an eventual nest egg that will
supplement CPP and OAS in your twilight years.

A Registered Retirement Saving Plan (RRSP) is a retirement investment
plan registered with the government. The financial institution that you
purchase the plan from should give you an RRSP contribution slip for
tax purposes.

The RRSP contribution can be used to reduce your income and ultimately
reduce your income taxes for the year. Aside from the tax deduction,
the income earned in an RRSP is tax exempt provided the funds are not
withdrawn. As a result, if you hold investments inside and outside the
RRSP, investments that are tax preferred such as capital gains,
dividends can be kept outside the RRSP and investments such as interest
kept inside the RRSP.

For deductions on your 2007 tax return, RRSP contributions must be made before March 1, 2008.

In the event you forget, your local bank or billboards will constantly remind you.