Only 2 Days Left! Maximize Your 2023 Tax Refund with RRSP

Olena Li

PUBLISHED Wed, Feb 28, 2024, 11:30 PM EST. 5 min read.

Do you want to boost your 2023 tax refund through RRSP (Registered Retirement Savings Plan) contributions? If so, you have only two days left. The deadline for RRSP contributions this year is February 29th, with just two days remaining. Be sure to make your final RRSP contribution before this deadline; otherwise, your contribution will be counted towards your 2024 tax refund instead of 2023.

What is RRSP?

RRSP stands for Registered Retirement Savings Plan. Its purpose is to help you save for retirement while you have a stable income. One of the Canadian government’s objectives in introducing this plan is to encourage individuals to save for their own retirement, thereby alleviating the future burden on government pensions. Therefore, RRSP is not unfamiliar to the Chinese community; it is akin to what we understand as a pension plan, but with additional policy support from the Canadian government for RRSP investments.

Before delving into the role of RRSP, let me ask you a question: Are you familiar with Canada’s tax system? In a nutshell, your tax bracket depends on your income level. At the end of each year, with salary increases and bonuses, you may feel the increasing burden of taxes. RRSP can help reduce your tax burden to a certain extent.

The Principle of RRSP

The principle of RRSP can be summarized in two words: tax deferral. In essence, you can use this year’s income to purchase RRSP, and this portion of income will not be taxed this year, but will be taxed when withdrawn in the future. For example, if your income this year is $130,000, and you purchase $10,000 of RRSP, your taxable income for this year will be $120,000.

Therefore, you can enjoy tax deductions and reduce your tax burden for this year. However, please note that when you withdraw this money in the future, you will still need to pay taxes, as this portion of the funds was not taxed at the time of purchase.

Another Benefit of RRSP

In addition to tax deferral, RRSP offers another significant benefit: the investment income generated within RRSP is tax-free. In other words, interest, dividends, and capital gains earned from investments within RRSP are not subject to taxation. This means you can effectively increase your wealth without worrying about taxation reducing your investment returns.

Spousal RRSP

Spousal RRSP is a derivative product of RRSP, suitable for individuals with spouses. It is particularly suitable for couples with significant income disparities. Through Spousal RRSP, you can distribute retirement income reasonably, thereby minimizing the tax burden on both spouses. For example, if one spouse has a higher income while the other spouse has no income, Spousal RRSP can effectively reduce the overall tax burden of the family, achieving optimal financial planning results.

RRSP Contribution Limit and How to Open an Account

The RRSP contribution limit is determined annually based on 18% of your previous year’s income, with a maximum limit. For example, in 2024, the maximum limit is $31,560 CAD.

You can determine your RRSP contribution limit through the following methods:

  1. Call CRA: Dial 1-800-959-8281, press 3, then press 1.
  2. Check your Notice of Assessment: The tax authority sends you a letter annually after you file taxes, informing you of your remaining RRSP contribution room.
  3. Log in to CRA’s official website: Go to My Account, and your RRSP contribution limit will be displayed at the bottom.

As for how to open an RRSP account, you have several options:

  1. Bank: Typically, you can purchase the bank’s GIC (Guaranteed Investment Certificate) or funds.
  2. Insurance Company: You only can purchase guaranteed investment funds or Segregated Funds.
  3. Online Brokerage: Platforms like Wealthsimple, Questrade, etc., are suitable for self-directed stock trading or ETF investment.
  4. Independent brokerage: Aimstar Capital Group Inc, for example, offers a wide range of funds in the market, providing more investment choices and professional asset allocation advice.

In conclusion, RRSP is a powerful financial tool that can help you plan for your retirement and optimize your tax planning. If you have not yet opened an RRSP account or want to maximize the use of this account, AimStar’s wealth management team is always available to help you establish a suitable investment portfolio based on your individual circumstances, enabling you to enjoy a richer retirement life in the future.

If you have any questions or need further assistance, please feel free to contact us. AimStar is committed to helping you achieve your financial goals.

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