Use Your RRSP to Travel The World - Harjinder Sandhu's Top Tips - harjinder

Use Your RRSP to Travel The World – Harjinder Sandhu’s Top Tips

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blog image April 20, 2022

Use Your RRSP to Travel The World – Harjinder Sandhu’s Top Tips

A Registered Retirement Savings Plan is a financial instrument that gives you complete peace of mind during your retirement years. The income earned in an RRSP is exempt from tax; you will only be required to pay tax when you withdraw the amount from the plan.
We all dream of going on holiday and witnessing the beautiful sights the world has to offer. However, it requires a significant amount of money to travel. One of the best ways for a Canadian to save money so that one day you can travel is to open a Registered Retirement Savings Plan (RRSP). This savings plan is an ideal source of earning a regular stream of income during your retirement years. With an RRSP, an individual can withdraw up to $10,000 annually or a maximum of $20,000 tax-free.

Another tip could be to split the income with your spouse as it is a fantastic way to reduce taxes. With an RRSP it can be done in two ways. They can either contribute through their RRSP or have the spouse as the annuitant. Another suggestion would be to make in-kind contributions. It is not always required to make only cash contributions; you can also make in-kind contributions such as mutual funds, stocks, etc., to your RRSP. Now, you might be wondering if these contributions are taxable; the answer is yes.
Your RRSP reaches maturity on the last day of the calendar year when you turn 71. Until then, you have the freedom to access funds in your RRSP through three maturity options. The tax implications are based on the option you choose:

  1. Maturity option 1: Making a lump-sum withdrawal
    You have the option to withdraw all the funds in your RRSP as a lump-sum amount. However, the amount withdrawn will be subject to withholding tax. The withholding tax gets taken out of your withdrawal immediately and paid to the government. In addition, you must add the amount when filing your taxes.
  2. Maturity option 2: Try converting your RRSP to RRIF
    You have the freedom to convert your RRSP to a Registered Retirement Income Fund (RRIF). An RRIF gives an individual a stable flow of retirement income with a minimum that must be withdrawn each year. Keep in mind a couple of things when converting your RRSP to an RRIF
    ·      Annual withdrawals: You must make annual minimum withdrawals from your RRIF. These minimum withdrawals must compulsorily be included in your taxable income each year. They are not subject to withholding tax at the time of withdrawal. However, any amount that is withdrawn over the minimum amount will be subject to withholding tax.
    ·      You could eventually run out of money: Your return may not exceed your RRIF withdrawal rate, which could ultimately outlast your savings.
  3. Maturity option 3: Purchase an annuityAnother option would be to convert your RRSP to an annuity that offers the individual a guaranteed source of income for life or a specified period.

For further details on RRSP, please do not hesitate to contact Harjinder Sandhu today.

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