How To Open Registered Retirement Savings Account

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Many people are unaware that the government only represents a small portion of their retirement income. That portion is typically only 30 percent. The employer’s pension plan only offers 30 percent as well. Most people do not even have a pension plan. That is why it is up to the individual to invest their money wisely over the years. It is essential in order to compensate for the money that is not available if the plan is to live comfortably once he or she retires. That is why it is important to understand the details of a registered retirement savings plan (RRSP).

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The first thing to know is that contributing throughout the year to the RRSP will reduce the amount of income tax that is taken from the employee’s annual salary. This can be accomplished by contributing to the RRSP through payroll deduction. By doing this, the individual pays less in income tax during year and usually will not overpay taxes.

It is very important to know when a yearly contribution can be made to a RRSP. Most people are not aware that this can be done on the first day of the year, any year. Most wait until they have been informed of what their annual contribution limit is. Typically this information is not provided until the second week of February or first week of March.

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However, it does not actually work that way. If a contribution is made that exceeds the annual limit, the individual will not notified. Those additional funds will either be returned or held for contribution the following year. It is necessary to know that the unused funds do not have to be returned. They can be carried into a future year’s contribution.

One must consider all investment options for their RRSP. There is a wide array of options available. Some include government and corporate bonds, investment certificates, and shares on the Canadian stock exchange. Other little known investments are mutual funds that are Canadian based. These investments have to adhere to specific government guidelines.

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Finally, another important thing to know about a RRSP is that an individual’s spouse can directly contribute to the RRSP as long as they do not exceed the annual limit. When the owner of the RRSP reaches age sixty-nine, as long as their spouse is younger, they can put the RRSP in the spouse’s name.

Please think about the above details when considering contributing to a registered retirement savings plan. It is necessary in order to be able to make smart investment choices. No matter the age, it is never too soon to think about the future. If there is to be a comfortable and enjoyable retirement, the time to start planning is now.

Visit this rrsp faq and learn more about how to save for retirement.

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