RRSPs Are Fun!
…OK, that’s a total lie. I apologize. RRSPs cannot possibly be fun. The topic is actually one of the dullest and most mind-numbing in the entire accounting field.
In case you’re unfamiliar, Registered Retirement Savings Plans (see RRSP acronym above…and below) are tools the Average-Justin or Average-CarlyRae Canadian can use to save for their retirements while generating more cash today. Your RRSP contributions reduce the income you’re taxed on, lowering the tax you’ll owe for the year.
Mind numb yet? I promise to be funnier in future paragraphs.
An RRSP is, therefore, a great way to tax-shelter your savings. But it may not be for everyone. In fact, if you’re at the start of your career and you believe you’ll be making more money in the future, you may want to save your RRSP contribution room because it becomes more valuable as your income goes up. For those of you who want to use your RRSP room this year, good on you! Something to keep in mind – the contributions you make to an RRSP are locked up until you reach retirement age. Pulling the money out before then means a hefty tax bill plus you lose the contribution room! A double-(tax)-whammy.
In other words, all the tax money you saved goes down the tubes…So don’t over-contribute and leave yourself cash short for next year because we have no way of knowing where those tubes lead to! (I imagine the tubes lead to a large room at the Canada Revenue Agency Headquarters filled with balled-up paper and #2 pencils…similar to the kids’ ball-pit playroom at IKEA, but for adults, far more nightmarish and far less colourful.)
That concludes this week’s Tax Tip Tuesday. I hope you feel I kept my earlier promise and that your RRSP-induced trance-state was brief and painless.
Resistance (to taxes) is Futile,
The Funny Accountant.
For more information on this and other tax issues, please contact The Funny Accountant/President of MK & Associates at firstname.lastname@example.org or visit the website http://www.mkassociates.ca for more contact details.