Retirement Savings Plan

Canadians are living longer more active lifestyles in retirement and … an RSP can be an important part of your overall retirement plan, helping you to maintain your standard of living when you retire. In addition to this, saving in an RSP can reduce your annual taxable income by the amount of the eligible contribution because RSP contributions decrease your gross taxable income. So, the more you contribute, the less income tax you'll pay in the year that you make the contribution.

A spousal RSP allows one spouse, typically the higher income earner, to make RSP contributions on behalf of the other spouse. For example if you earn significantly more income that your spouse, you have more taxable income and fall in a higher tax bracket. You should, therefore, consider allocating future taxable income as evenly as possible between you and your spouse or common- law partner. This is commonly known as "income-splitting".

You are entitled to put all or part of any allowable RSP contribution into an RSP in the name of your spouse or common-law partner. When you both withdraw your RSP savings during retirement, the combined income tax you pay as a couple may be lower than what you would pay if all your savings were in a single RSP. As the contributor to a spousal RSP, you benefit from the tax deduction while building a retirement nest egg for your spouse or partner. Amounts withdrawn from a spousal RSP will be considered part of the taxable income of your spouse or partner, to the extent that you have not contributed any amount to a spousal plan in the current year or the two preceding years. A spousal RSP is most beneficial in a situation where the spouse would otherwise have little retirement income while the contributor would have a significant amount of income.

Although an RSP is more effective as a long-term investment, you may withdraw all or part of it at any time.* RSP withdrawals are subject to tax and the terms of the investment in the plan. Withholding taxes apply on funds withdrawn from an RSP except when funds are transferred from one RSP to another, or when funds are transferred to a retirement income option such as a Retirement Income Fund (RIF).

* Please note that withdrawal restrictions apply to locked-in RSP plans.

There, are however, two scenarios that allow you to you withdraw from your RSPs without incurring income tax: buying a qualifying home and or going back to school. The Home Buyers' Plan (HBP) lets you withdraw up to $25,000 from RSPs for a qualifying home purchase. The amount you withdraw must be repaid within 15 years, subject to a minimum annual repayment that is 1/15 of the amount withdrawn.

If you're going back to school, the Lifelong Learning Plan allows you to withdraw up to $20,000 from your RSP to pay for eligible training or education for you, your spouse or your common-law partner. Once you withdraw the funds, you get 10 years to repay the withdrawals.

By law, your RSPs must be converted to a form of retirement income by the end of the calendar year in which you turn 71. The most popular choice for Canadians is to convert their RSPs to a Retirement Income Fund (RIF). With a RIF, your investments can continue to grow on a tax-deferred basis supplementing your retirement income.

The value of your RSP is paid to the beneficiary you have designated. If you have not designated a beneficiary, it is paid to your estate. In certain cases, including if your beneficiary is your surviving spouse or common-law partner, your RSP may be transferred to them on a tax-deferred basis. You should consult your District Taxation Office or legal and tax advisors for more specific information.

Start your RSP as early as possible. Contribute as much as you can and do it regularly. Even modest regular contributions can build over time into a significant retirement nest egg. Canada Revenue Agency (CRA) makes it easy to know how much you can contribute to your RSPs each year. For your current year's limit, simply refer to your CRA Notice of Assessment, which sets out the maximum amount you may contribute in the current year, including any unused contribution room carried forward from previous years.

Let's take a look at why it pays to start saving early. If you invest $500 a year for 40 years starting today, you can accumulate more than twice as much as the person who waits 20 years, and then invests $1,000 a year for 20 years. The total amount invested is the same, but look at the difference in results.
Total RSP balance after 40 years of $500 annual contributions equals $77,381.
Total RSP balance after 20 years of $1,000 annual contributions equals $36,786.
This example is based on a constant 6% rate of return in order to illustrate the advantages of tax-deferred savings and compounded returns. Because actual returns on investments in an RSP fluctuate, the amounts shown do not necessarily represent the value you would actually accumulate in an RSP.

Contributing weekly, biweekly or monthly can be an excellent way to budget for your RSP contributions. Making regular contributions not only avoids the last-minute scramble for a large, lump sum contribution, but, as the example in question 11 below highlights, you could also earn more tax-deferred income than you would waiting until next year.
You can contribute regularly to a TD Mutual Funds RSP with a Pre-Authorized Purchase Plan(PPP), or invest regularly in TD Canada Trust GICs with a Pre-Authorized Transfer Service(PTS).
Our Retirement Savings Calculator tool can help you determine your retirement needs and the savings required to reach your goals.

You have until March 1 (or February 29 in a leap year) to contribute to your RSP and count the contribution as a deduction against your previous or current year's income. Once this date has passed, RSP contributions are only deductible against your taxable income for the current (or any subsequent) year. (Please note: when March 1 or February 29 falls on a weekend, the deadline may be extended to the following Monday.)

The Notice of Assessment that you received from Canada Revenue Agency (CRA) after filing last year's tax return, stated your maximum contribution for the current year. If you have not received this notice or need to double check the amount, simply call CRA. For service in English, call 1-800-959-8281. For French, call 1-800-959-7383.

If you are/were self-employed, or employed and not a member of an employer-funded Registered Pension Plan (RPP) or Deferred Profit-Sharing Plan (DPSP) --
For the 2016 tax year, your RSP contribution limit is 18% of your 2015 "Earned Income" to a maximum of $25,370, plus any unused contribution room carried forward from previous years.

If you are/were a member of an employer-funded RPP or DPSP --
For the 2016 tax year, your RSP contribution limit is 18% of your 2015 earned income to a maximum of $25,370 less pension adjustments reported by your employer, plus any unused contribution room carried forward from previous years. This information is intended as a guideline only. Please contact CRA for full details and calculations.

*These are intended as guidelines only and are subject to change. Please refer to Canada Revenue Agency (CRA) for complete details and calculations.

It's a sound strategy to contribute early in the tax year. Contributing at the earliest possible date, rather than waiting for the deadline, can make a big difference because your savings can generate more compound income. The difference can really add up!

Three people contribute $18,000 a year at 6% compounded annually:
Person "A" contributes in January at the beginning of the tax year.
Person "B" contributes in December, at the end of the tax year.
Person "C" contributes $1,500 every month.

At the end of 35 years, their RSPs are worth:

In 35 years, "A" has $120,350 more in their RSP than "B"!
In 35 years, "C" has $64,609 more in their RSP than "B"!
The example above is based on a constant 6% rate in order to illustrate the advantages of tax-deferred savings and compounded returns. Because actual returns on investments in an RSP fluctuate, the amounts shown do not necessarily represent the value you would actually accumulate in an RSP.
Our Retirement Savings Calculator tool can help you determine your retirement needs and the savings required to reach your goals.

If you don't contribute the maximum allowable to your RSP in any year, you can carry the unused portion forward indefinitely. Any amounts "carried forward" are reflected in the statement provided by Canada Revenue Agency with your "Notice of Assessment".

test Your RSP contribution could be the most important investment you make every year. So even if you haven't got cash on hand now, it can pay to borrow with an RSP loan or line of credit. But don't forget, credit applications are subject to meeting certain lending criteria, and using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest remains the same even if the value of the securities purchased declines. Consider what happens if you miss a single $1,000 contribution at age 31. It doesn't sound like much, but if you were to factor in a 6% annual rate of return and assume you didn't make up for this contribution in a future year, you could witness a dramatic $9,285.72 reduction in the net value of your RSP by the time you reach age 71.

Here's another way to look at it --

The example above assumes that your RSP earns 6% interest compounded annually, the loan interest rate is 4% compounded monthly, and the loan is repaid in 12 equal monthly installments of approximately $85. Rates are for illustrative purposes only. They are not intended to be representative of current rates. It can also make good sense to invest your income tax refund in your RSP so it can earn tax-deferred income until it is withdrawn. Or you can use it to pay off your RSP loan early with no additional costs, or to pay down your line of credit.

No, RSP loan interest is not an eligible deduction.

The answer to this question depends on many factors. If you are close to retirement, then the benefit of the RSP, outside of reducing income tax, can be minimal. So paying down your debt in this instance can be a better solution. Otherwise, normally it can be better to choose the RSP, due to the benefits of compound returns over time. A good solution to this dilemma can be to put money into your RSP, and pay down the mortgage with the tax refund it can provide you. Contact any TD Canada Trust branch for more information and help analyzing your specific situation.

At TD, we have a wide variety of RSP options available to you, including:

• TD Canada Trust RSP
• TD Mutual Funds RSP
• TD Direct Investing Self-Directed RSP¹

You should choose a plan that permits investments that will meet your financial objectives in terms of the risk or safety of the principal, and your need for income, growth and liquidity. This is your retirement nest egg in which you are investing, so take the time to investigate the different types of RSPs and support available at TD Canada Trust and TD Direct Investing.

• Mutual funds
• Common and preferred shares of Canadian corporations listed on any Canadian and many foreign stock exchanges
• Fixed income securities including bonds, debentures, strip bonds and notes
  • issued by a corporation that has shares listed on a Canadian stock exchange
  • issued by a Canadian government (federal, provincial or municipal)
  • guaranteed by the Government of Canada
• Many foreign shares and fixed income securities
• Canadian and Provincial Treasury Bills (T-bills), Canada Savings Bonds and Provincial Savings Bonds
• Term Deposits, GICs and cash in Canadian currency
• Options to purchase eligible securities
• Mortgages

Certain other investments may also be eligible for your RSP. For details, please contact your tax advisor or Canada Revenue Agency District Taxation Office.

If after receiving your statement from CRA, you find that you've made contributions in excess of your contribution limit, there is a "safety net". Over-contributions can remain in your plan without penalty as long as the excess balance is $2,000 or less. (If your over-contribution exceeds $2,000, you may be assessed a penalty of 1% per month on the excess amount.) While you won't get a tax deduction for any over-contribution in the year it is made, you can claim it as part of your contribution limit in subsequent years.

Although an RSP offers the potential for long-term tax deferral, you may withdraw all or part of it on request (subject to the terms of the investments in the plan). Of course, any money you withdraw is considered taxable income in the year it is withdrawn. But the important part is that your money is available if you need it. Withholding taxes apply on funds withdrawn from an RSP except when funds are transferred from one RSP to another directly, or when funds are transferred to a retirement income option such as a Retirement Income Fund (RIF)

Note: Additional taxes may be payable when you file your tax return, depending on your marginal tax rate.

You can accumulate retirement savings in your RSP up to December 31st of the year you turn 71, at which time it must either be converted into an approved form of retirement income such as a Retirement Income Fund (RIF), or withdrawn in cash. If you withdraw cash, you must pay income tax on the amount in the year it is withdrawn. If you wish to avoid this, it's important to arrange for the purchase of a RIF with your RSP funds prior to December 31st of the year you turn 71. Consult a financial advisor ahead of time as the retirement income option you choose should be based on your individual needs.