Now is the time to consider contributing to your RRSP if you have not done so already. The deadline for contributing to an RRSP for the 2023 tax year and the deadline is quickly approaching, and this year, it will be on February 29th, 2024.
Here is a summary of RRSPs:
- Contributions made are tax deductible, which means contributing to your RRSP can help reduce your taxes payable or increase your tax refund.
- Annual Contribution room for 2023 is the lower of $30,780 or 18% of your annual earned income in the previous year. Always confirm the RRSP contribution limit with your notice of assessment.
- You do not pay tax on any income earned in your RRSP until you withdraw funds. Typically, funds are withdrawn once individuals are retired or on the last day of the calendar year the individual turns 71 the RRSP is converted to Registered Retirement Income Funds (RRIFs). All RRIF holders must withdraw a minimum amount annually, which may impact the government’s Old Age Security benefits.
- If you choose to withdraw funds early, you will be subject to income tax as the withdrawn amounts will become taxable income.
- You can withdraw funds from your RRSP to assist with a first-time home purchase under the Home Buyer’s Plan (HBP) or for educational purposes under the Lifelong Learning Plan (LLP). Withdrawals under these plans are not taxable. However, you must repay the amounts you withdrew over a certain period.
- For couples where one spouse earns a higher income than the other, a spousal RRSP allows the partner with the higher income to contribute to an RRSP in their spouse’s name and receive the tax deduction themselves.
With the 2023 calendar year behind you, you may be able to estimate your tax payable in 2023. You can use that information to investigate your tax bracket and decide whether an additional RRSP contribution would be beneficial.
If you have any questions, the team here at McGovern Hurley LLP is always here to help.
John Mendis, Tax Advisory and Compliance Partner, firstname.lastname@example.org
Greg Furyk, Business Advisory and Compliance Partner, email@example.com