FEB 2021

Hello everyone, and welcome to the first issue of the Dave Financial newsletter. In this monthly newsletter we will be providing Dave Financial clients with pertinent information, so that our clients better understand their financial position along with the options available to them. This month we will be tackling the subject of an RRSP account. We hope you enjoy our newsletter, and stay subscribed for more.

Intro

An RRSP or Registered Retirement Savings Plan is a financial account to help Canadians save for retirement. However, the RRSP plan is useful for much more and in this newsletter we will be discussing what an RRSP account is, along with the 3 most popular reasons for starting an RRSP account.

When money is placed in an RRSP account, it will grow in that account completely tax-free. When money is withdrawn however, it will be taxed at your current marginal tax rate. As your tax bracket will allow you to pay much less in taxes in retirement, this can be an extremely powerful tool for any individual. Simply having an RRSP account does not mean however that your retirement is secured. It simply means that the investments in that account will not be taxed, and allowed to compound. RRSP’s come with limits, allowing you to deposit 18% of your income in the previous year up to a maximum of $27,230. While it is possible to contribute more, additional sums will be penalized.

There are many different types of RRSP accounts with benefits varying for individuals in different situations. The most common form of an RRSP account is an Individual RRSP, but spousal RRSP’s, Group RRSP’s, and Pooled RRSP’s are also options. As each person's financial situation is unique, we recommend setting up an appointment with one of our qualified agents here to find out which type of RRSP account is right for you.

3 most popular reasons to open an RRSP account:

• Taxes

The most popular reason to open an RRSP account is to save your money from taxation. As RRSP contributions delay taxation until retirement. As you will almost certainly fall under a lower tax bracket at retirement, this can reduce the amount of taxes paid by a significant margin. An RRSP account is also entirely exempt from any capital gains tax, dividend tax, or income tax. This means that investments under RRSPs compound on a pre-deferred basis, allowing your investments to compound at a much quicker rate.

• Home-buying

Another reason to open an RRSP account is if you are planning on buying a home in the future. To promote home buying, the Canadian government has launched a program called the Home Buyers’ plan (HBP). This plan allows first time home buyers to borrow up to $35,000 from their RRSP for a down payment without any tax implications. This allows the users of this plan to save money for a home in their RRSP completely tax-free, making the daunting task of buying a home that much easier. If you are buying the home with a partner who is also a first-time home buyer, you are both able to access the $35,000 from your RRSP accounts. It is important to know however, that the HBP is considered a loan. For this reason, the money withdrawn must be paid back over the course of 15 years.

• Retirement

The most obvious reason to put money into an RRSP account though, is to save money for retirement. As we discussed earlier in this newsletter, we know that an RRSP account allows you to defer income tax from your peak earning years to your retirement when your income and tax liabilities are lower. Once your RRSP is set up, there are a wide variety to provide you with the required income while keeping your taxes low.

Once you pass the age of 71, your RRSP account will be automatically converted into an RRIF account. This account can hold the same investments as an RRSP account, but will forbid you from making any deposits. You can instead set a withdrawal rate to supply you with any retirement income you may need. An RRIF allows you to purchase an annuity with the funds that are available at any time. You can also choose to hold and manage your current investments or choose an investment plan.

We hope that this newsletter was informational and helpful, and look forward to interacting with all of you again.

Thank you,