Montréal – During this time of the year, more than half of all Quebeckers will contribute to a Registered Retirement Savings Plan (RRSP). Before you open an RRSP, the Autorité des marchés financiers (AMF) believes it is important that you be well informed on the matter.

What is an RRSP?
An RRSP is a tax shelter that enables you to grow your assets on a tax-deferred basis. RRSPs are used primarily to accumulate savings for retirement. The main advantage of RRSPs is undoubtedly the fact that individuals can deduct the amount of their RRSP contribution from their earned income when filing their tax return. Taxable income is therefore reduced.

An individual can contribute to an RRSP, for any given taxation year, until March 1 of the following year. For example, for the 2005 taxation year, an individual can contribute from January 1, 2005 to March 1, 2006.

The annual RRSP contribution limit is 18% of earned income, up to a maximum amount that is set yearly. The maximum for 2005 is $16,500. However, for individuals who contribute to their employer’s pension plan, the maximum contribution is reduced by a “pension adjustment” amount, which is determined by the Canada Revenue Agency and indicated on your T4 slip. Individuals can contribute to an RRSP until December 31 of the year in which they reach the age of 69. Under certain conditions, it is possible to contribute to a spousal RRSP, and it can sometimes be advantageous to borrow to contribute to an RRSP. You may wish to consult a financial services professional concerning these matters.

If you cannot contribute the maximum amount and if you have not done so in the past, your contribution “credits” have been accumulating since 1991. Your federal tax assessment notice for the previous year indicates the maximum amount you can deduct.

If you are 18 or older, you can make an overcontribution of $2,000 to your RRSP without penalty. You should be aware, however, that this amount is cumulative and not annual. If you exceed the $2,000 overcontribution limit, a monthly penalty of 1% will apply to the amount in excess of the limit. Persons under the age of 18 are penalized for any overcontribution. Note, however, that only the amounts that do not exceed your allowable contribution limit are deductible from your income. The $2,000 overcontribution is not deductible from your income as long as it is above your allowable limit, but it still accumulates on a tax-sheltered basis.

The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec’s financial sector.

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Philippe Roy (514) 940-2176
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