(NC)—The concept of Registered Retirement Savings Plans (RRSPs) is fairly simple. You put money in, get an immediate tax deduction each year up to your annual contribution limit, and your money grows in a tax-deferred environment.
“An effective RRSP strategy also includes taking advantage of all the options available to you to maximize the power and potential of your RRSP,” said Debbie Ammeter, a retirement planning expert at Investors Group. “These options can include the retiring allowance, pension adjustment reversal and RRSP beneficiary designation.”
If you leave a long-time employment position and receive a severance or retiring allowance, you are entitled to transfer into your RRSP an amount equal to $2,000 for each year of service before 1996, and an additional $1,500 for each year before 1989, in which you did not earn a vested pension benefit.
When you leave a company pension plan or deferred profit sharing plan, you will receive a pension adjustment reversal(PAR) if the total value of your past pension adjustments exceeds the benefit you receive out of the plan. The PAR restores lost RRSP contribution room and, if you have changed employers in the last year, getting professional advice on your potential PAR-room can pay off, Ammeter noted.
In most provinces, you can designate a beneficiary on your RRSP – and most people automatically designate their spouse. If your beneficiary is your spouse, your RRSP is transferred on a tax-deferred basis to your beneficiary’s registered plan. There can be instances, however, when it is more beneficial to name your estate as the beneficiary of your RRSP instead. This allows some of the proceeds to be taxed in the hands of the deceased and the remainder to be taxed in the hands of the spouse. And, by naming your “estate” and granting your executors the authority to make tax-deferred rollovers, you may be able to reduce taxes payable on other assets.
Your RRSP is an important part of your overall retirement plan andestate plan. To be sure you make the right choices that keep your RRSP on track for your benefit, and to maximize your legacy to your heirs, seek the advice of a professional financial advisor.
This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contacta financial advisor for specific advice about your circumstances. More information on this topic can be obtained from your Investors Group Consultant.