Registered Retirement Savings Plans

What is an RRSP?
A Registered Retirement Savings Plan is a government-approved plan through which you save money for your retirement years. Your contributions, within limits, are tax deductible, and the income earned is tax sheltered.

When should I start saving for my RRSP?
It is important that you begin to invest in your RRSP as early as possible and at a time when you can best afford to put money away for your future. Let's say you decide to put $2,400.00 into your RRSP per year, with an average interest rate of 8%. If you begin investing at age 25, and you invest for ten years (contributing $24,000.00 in total), your RRSP will grow to $377,844 by the time you reach 65. If, however, you began investing when you were 32, you would have to continue investing $2,400.00 a year until you are 64 to earn $378,304.00.

It is important that you contribute every year, so that you receive an optimal amount of interest.

RRSPs gain interest, either at a varying (Variable RRSP) or fixed (Fixed Term RRSP) rate of interest. Remember that any capital gain within your RRSP is not part of your taxable income.

Some things to keep in mind:

Contributions to your RRSP can continue until age 71. At the end of the year which your 69th birthday falls in, your RRSP must be converted into retirement income, or you can be taxed.

Check with your employer to see if your business offers Group RRSP's.

Using your RRSP to buy your home
In 1992, in the midst of a recession, the federal government chose to help citizens purchase their first home by allowing them to borrow up to $20,000, tax and interest free, from their RRSPs. This was done to motivate those still unwilling to take the home buying plunge and thus give the economy a shot in the arm.

The plan allows you to borrow a maximum of $20,000 from your RRSP to use in the purchase of your first home. Both you and your spouse or partner can take money from your RRSP, which means you can have $40,000 to put toward a down payment on your house. There are no taxes to pay, and as long as the funds are outside your account, you don't have to pay interest.

Rules and Conditions for RRSP Home Buyers' Plan
The government has a number of conditions on the Home Buyers' Plan:

• To qualify, you and your spouse must not have owned a home within the past 5 years, together or individually.
• You must pay the loan back to your RRSPs over the next 15 years, with payments beginning the second year after you withdraw the funds.
• You must be a resident of Canada and intend to make this home your principal residence.
• The money must be in your RRSP for at least 90 days before you can withdraw it under the plan if you want to claim a deduction.
• You must buy or have an agreement to build a home by October 1 of the year following your withdrawal.

The key requirement is that you have to replace what you've taken out of your RRSP to buy a home. And you're required to repay a minimum amount each year the equivalent of one .fifteenth of the amount you originally borrowed.