Advertisements abound showcasing images of a rosy retirement: elderly couples smiling happily from the balcony of their cottage, snapping pictures while on safari or practicing their swing in advance of another golf game. But what many Canadians are not considering is the importance of saving money now to make those dreams a reality.
A recent study commissioned by H&R Block Canada reveals only 33 per cent of Canadians will contribute to a Registered Retirement Savings Plan (RRSP) this year. Perhaps they're forgetting that RRSPs are a great way to lower income tax and increase their refund. Further, the money contributed grows tax-free for many years to come, providing some hope for a bright retirement.
There are many reasons why Canadians may not be taking advantage of RRSP contributions, including competing financial demands that make it difficult to put money aside. Yet Canadians should know that every penny contributed to a RRSP is tax deductible.
With tax season upon us, now is an opportune time for Canadians to review their 2017 income and determine how much they can contribute to an RRSP, up to the maximum outlined on a Notice of Assessment.
You do not have to claim a deduction for the full amount of your contribution. For example, if you are going to have a higher income next year (and therefore be taxed at a higher rate,) you might want to carry it forward since your tax savings will be greater
Another option Canadians have with RRSPs is to contribute to one that's in the name of a spouse or common law partner; just keep in mind that it lowers your personal RRSP deduction limit. This would be beneficial where one spouse has a higher income than the other. The higher income spouse claims the deduction, but the lower-income spouse will include it in income when they make a withdrawal.
Overall, when it comes to retirement, Old Age Security payments and Canada Pension Plan benefits won't necessarily provide the income many Canadians are looking for. For those without a company pension or other savings, a more comfortable retirement can be reached with a RRSP.
For those not thinking quite that far ahead, keep in mind that there are two other ways that Canadians can access RRSP money.
The RRSP Homebuyers' Plan has been enormously popular as it allows individuals to withdraw up to $25,000 from RRSPs to buy or build their first home without having to pay tax on the withdrawal. The money must be repaid to your RRSP over the next 15 years, or the minimum annual payment will be added to your income and you will pay tax on that, but it does help buy your first home.
More from H&R Block Canada:
The Lifelong Learning Plan allows Canadians to pull up to $20,000 from their RRSPs to head back to school. The withdrawals can be a maximum of $10,000 in any one year and can be spread over four years. This money must also be repaid within 10 years.
It's important that Canadians take full advantage of RRSP credits and deductions to ensure they're maximizing their tax returns, and getting one step closer to that dream safari trip.Also on HuffPost: