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Common questions
- Life Insurance can protect your family from any financial crisis
- You leave a completely tax-free inheritance to your dear ones or beneficiaries
- Life Insurance can pay for your funeral expenses
- You can clear your debts and loans with Life Insurance
Retirement Savings Insurance Plan
A Retirement Savings Plan (RSP) is the best way to ensure your financial security once your retire. Even though government programs make up part of a retirement plan, they do not offer the level of income that many Canadian citizens look for when they retire. For more than sixty years, the tax structure. Around for over 60 years, the tax structure allows you to delay paying income tax on your deposits and earnings. The tax is applied only when you withdraw the money. Since most Canadians have a higher tax rate in their working years than retirement years, this often results in overall tax savings. To find out more information, contact the team at Equitable Life of Canada today.
Notable features of the plan:
- 18% of earned income – Annual contribution limit
- Unused contribution room is carried forward to the following year
- Income splitting
- Retirement Income Fund
- Home Buyers' Plan
- Lifelong Learning Plan
Based on your total annual income, your income tax will be deducted by your employer. A deposit to your Registered Retirement Savings Plan will reduce your taxable income. This means you end up paying more income tax than what’s required during the year. When you file your tax return with the Canada Revenue Agency (CRA) and claim your Registered Retirement Savings Plan deduction, you will receive a refund for any overpaid income tax.
By looking at your most recent Notice of Assessment, you can identify your maximum contribution limit. This notice is issued by the Canada Revenue Agency (CRA). Based on your previous year’s earned income and the maximum retirement savings plan contribution limit, the maximum limit is 18%. Additionally, if you are a pension plan member, your pension adjustment will decrease the amount you can donate to your Registered Retirement Savings Plan. The unused contribution room can be carried forward to the subsequent years.
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Other significant features of a Retirement Savings Plan
Home Buyers’ Plan
As a first-time homebuyer, you have the opportunity to withdraw up to $35,000 tax-free in a calendar year to build or buy your first home. When you withdraw funds at the start of the second year, the repayment period begins, and you have up to fifteen years to pay the amount back. With home prices steadily rising, it is advisable not to tap into additional resources to increase your down payment. For more details, get in touch.
Life long Learning Plan
This plan allows you to go back to school or college. You can withdraw up to 20,000 dollars tax-free to cover your tuition expenses for you or your spouse. You have up to ten years to pay back the money.
Income splitting
In this plan, a spouse with a higher marginal tax rate can contribute to the spouse’s retirement savings plan with a lower income. Spousal splitting allows the spouse with a more significant income to reduce their taxable and net income.
Retirement Income Fund
Before you reach 71, you must change your Retirement Savings Plan to a Retirement Income Fund (RIF). It is an investment that allows you to get paid when you are retired. The money you placed in this fund over the years is now being paid back to you. This plan also provides a steady and continued growth in a tax-free environment.
Products that offer a Retirement Savings Plan
Equitable Life of Canada offers Retirement Savings Plans with a wide range of investment options to choose from. Our Guaranteed Investment Account is the perfect investment if you are looking for an investment with a guaranteed interest rate. The account offers affordable interest rates with flexible investment terms. Additionally, our Pivotal Select™ segregated fund product comprehensively selects investment funds from various Canadian fund managers. Whether you’re looking for equity, fixed income, or continued growth, our investment options can be personalized to suit your specific needs. These investments are not only versatile but also provide the protection you need, with the tax savings and benefits of a Retirement Savings Plan
Contributing to a Retirement Savings Plan
Retirement Savings Plan contributions can be made either the first sixty days of the following tax year or during the tax year. They can also be made monthly; you benefit from dollar-cost averaging when you contribute to the plan monthly. It is an investment strategy where deposits of a fixed-dollar amount are made at intervals scheduled regularly, ensuring your costs are averaged over the year when you make regular purchases. The benefit is two-fold, it helps reduces the impact of a rocky market, and two, your contributions over the year are compounded. You must make your retirement savings a prime concern as it can help you achieve the retirement income you desire.
Borrowing money to save money
Have you ever contemplated borrowing money to provide to your Retirement Savings Plan (RSP)?. Unlike credit card debt, Retirement Savings Plan loans, Investment loans and mortgages fall into the “good debt” category because they increase your net worth. With a Retirement Savings Plan loan, you can invest straight away and take advantage of long-term compounding growth, as well as a quick tax refund. The tax refund received from your Retirement Savings Plan is usually more than the interest you will pay on the loan.
Here is how the investment works. Kwame is a 40-year-old man with an income of $55,000. He takes a Retirement Savings Plan loan in the hopes of paying back the loan in one year. Every month for one year, he must pay $586/month at an interest rate of 4%. Kwame invested a total of $10,000 into his Retirement Savings Plan and would have only paid approximately $150 of interest on the loan, around costing up to $7,035 ($6,885 + $150).
| Loan Amount | $10,000.00 |
| Income tax reduction: (31.15% marginal tax rate) | $3,115.00 |
| Cost of Investment: | $6,885.00 |
| Monthly Payment*: | $586.26 |
*Assuming the rate of interest at 4% and the tax refund was quickly applied to the loan.
Fast-forward twenty-five years to age 65 and assuming an average annual return of 6%, Kwame’s $10,000 Retirement Savings Plan contribution that cost $7,035 is now worth $42,919!
Talk to our financial advisor at Equitable Life of Canada today and find out how an RSP can be included in your tailored financial plan.
Managing a Retirement Savings Plan tax refund
When the money is deposited into your bank account, you know the dilemma that comes if you have ever received a tax refund. The reaction, in the beginning, is to spend it on yourself, and why not! You deserve to treat yourself for having worked hard all year. As you think about the endless possibilities, you’re put back to reality with mails on credit card payment, mortgage etc. Below-mentioned is top five reasons you might want to consider for that tax refund:
- Keep aside as an emergency fund Many reputable financial advisors suggest that it is financially wise to set aside the equivalent of three to six months’ salary for any unexpected expenses that may arise. By setting up an Equitable Life® Tax-Free Savings Account, you can use the funds to care for unforeseen expenses without stressing over the finances
- Pay off outstanding credit card debt Free up your cash flow by eliminating high-interest credit card debt. The idea is to pay off the credit card and keep it clear each month. If you can pay off a little more than the minimum monthly payment, or better, pay off the debt altogether, you can use that money for other things.
- Provide for your Retirement Savings Plan (RSP) Get ahead by contributing next year’s contributions to your Retirement Savings Plan. When it is time to retire, the power of “compound growth” by contributing early will often put you in good financial shape.
- Pay off your Retirement Savings Plan loan If you have taken out money to contribute to your Retirement Savings Plan, now is the right time to start paying back the loan. Paying the loan down quickly will free up the cash that can be utilized for other things or decrease your cost of borrowing.
- Pay down your mortgage As interest rates rise, it leads to an increase in the cost of borrowing. Irrespective of the amount you contribute, most mortgages will allow you to provide an annual lump-sum payment. Remember, every little bit counts.
- Optional riders allow you to personalize your plan, including adding critical illness insurance that provides funds to help cover your personal, business and medical expenses.
If you decide that you want to pay less tax, below-mentioned is some steps that you can conform to reduce your taxes.
- Fill up and submit the Canadian Revenue Agency form T1213 (Request to Reduce Tax Deductions at Source)
- You must check the requesting a reduction in the amount of tax withheld on your salary box. You can also make this request if you expect vacation pay or a large bonus and prefer not to have the enormous amount of tax held back.
- Mention which non-refundable tax credits and regular deductions you qualify for. These would include amounts like childcare expenses, regular RRSP contributions etc.
- If and when the Canadian Revenue Agency approves you, you will witness more money on every payment.
If you are unsure about what to do with that refund, talk to our expert financial advisor at Equitable Life of Canada today about the best options that suit your needs.
A Retirement Savings Plan (RSP) is just as relevant now as it was over sixty years ago
As popular as the Tax-Free Savings account is, the Retirement Savings Plan (RSP) does not invoke the same feeling it once did. The way you should go about your savings should be dependent on what you want to save.
A Retirement Savings Plan from Equitable Life of Canada can fund your goal of further education, retirement, or owning your dream home. A Retirement Savings Plan can even help you to save money for your future.
- Home Buyers’ Plan: If you are a first-time homebuyer, this plan allows you to withdraw up to $35,000 tax-free to build or buy your first home in a calendar year. The period to repay the amount begins the second year after you have withdrawn the funds, and the payback period is 15 years. With home prices gradually rising, why not tap into extra resources to increase your down payment.
- Lifelong Learning Plan: This plan allows either you or your spouse to go back to school. The maximum tax-free amount that can be withdrawn to cover your education expenses is $20,000. The period to repay the amount you have borrowed is ten years.
- Retirement: For some, retirement might seem like a lifetime away, by the reality is contributing to your Retirement Savings Plan (RSP) at an early age will make your savings grow over time. The best part is Retirement Savings Plan contributions are tax-deductible, which can benefit you later in life. Even though it may seem like a lifetime away, the truth is, contributing to your Retirement Savings Plan now gives your money time to grow. At the same time, the contributions of a Retirement Savings Plan provide tax deductions that can help later in life, including offering you an instant tax return.
Remember when I mentioned earlier that a Retirement Savings Plan could force you to save money? Taking out money from your Retirement Savings Plan when it does not associate with education or homeownership will cost you, as the amount becomes taxable and is added to your annual income. Consider it as a security blanket for when you make an impulse decision to spend your savings.
Oh, and speaking of those built-in guarantees? Equitable Life of Canada offers an investment plan that provides guarantee classes that allow you to select the level of safety that suits your financial and personal needs. The guarantee protects part of the money you invest (75% to 100%). So even if the key investment loses money, you are guaranteed to get back some or all your principal investment.
Find out how to build an Equitable Life Retirement Savings Plan into your overall financial plan. Get in touch with our financial advisor at Equitable Life of Canada today.
Get the best Insurance Quote from Equitable
Call 1 844-542-4678 to speak to our advisors.