Montréal – With the onset of the 2007 RRSP season, a time when nearly half of all Quebeckers will contribute to their registered retirement savings plans (RRSPs), the Autorité des marchés financiers (AMF) urges you to learn more before investing in an RRSP.
The AMF invites you to drop by the 2007 RRSP Season section of its website. This section of our site includes a series of theme-based documents on RRSPs that can help you make sound decisions.
Moreover, to help ensure that you are well-informed about financial products and services, we invite you to read our eight informative brochures on savings and investments. These brochures can be downloaded from the AMF website, in the section dedicated to consumers, under "Making Informed Investment Choices." You can also obtain these documents by contacting the AMF Information Centre at 1 866 526-0311.
What you need to know about RRSPs
An RRSP is a tax shelter that allows you to increase your assets tax-free. It mostly serves to accumulate savings for retirement. The primary benefit of RRSPs is without a doubt the fact that at tax time, the amount of your contributions can be deducted from your earned income. This therefore lowers your taxable income.
You can make RRSP contributions for a given tax year until March 1st of the following year. For instance, you can contribute from January 1, 2006 to March 1, 2007 for the 2006 tax year.
The annual RRSP contribution limit is 18% of earned income, up to an annual ceiling of $18,000 for 2006 and $19,000 for 2007. If you participate in your employer's pension plan, however, the maximum amount that you are entitled to contribute will be reduced by the “pension adjustment” reported by the Canada Revenue Agency on your T4 slip.
You can make RRSP contributions until December 31st of the year in which you turn 69. You can also, under certain conditions, contribute to your spouse's RRSP. It can also be advantageous, in some cases, to borrow in order to make RRSP contributions. We suggest that you speak with a financial adviser for more information in this regard.
If you do not make the maximum allowed RRSP contribution, or have failed to do so in the past, your contribution "credits" will accumulate, and this dating back to 1991. This maximum contribution room is indicated on your previous year's federal government tax assessment.
Did you know that if you are over 18, you can contribute $2,000 over your limit without penalty? This limit, however, is cumulative and not annual. If you exceed the $2,000 total, a penalty of 1% per month will be levied on the additional amount. Persons under 18 years of age are penalized for any excess in such circumstances. Note that only the amounts that do not exceed your contribution limit are deductible from your income. The $2,000 is therefore not tax deductible as long as it continues to be an excess amount. This being said, it does continue to grow, tax-free.
- If your RRSP contains securities, make sure you deal with a firm or a representative duly registered with the AMF.
- If you invest in investment funds, ask for a prospectus. This document explains the type of investment you have chosen and discusses risk factors, among other information. Remember that the time period for cancelling a transaction involving an investment fund is two days after receipt of the prospectus.
- Insist on receiving a copy of any documents you have signed. You will then have all the details and conditions related to your investment for future reference.
- If you are considering investing in mutual funds, make sure to verify that the issuer is duly registered with the AMF.
- When requesting a transfer of funds from one financial institution to another, you would be well advised to send your request in writing to the institutions concerned. In general, ten working days should be ample time to transfer your account from one securities dealer to another.
- Be careful! Some securities held in your RRSP are not guaranteed and can therefore fluctuate in value.
- To learn more about the conditions for a given investment's RRSP eligibility, we suggest you contact the Québec Department of Revenue.
Lastly, the AMF wishes to stress that RRSPs are but one tool among the many savings options available for retirement planning purposes.
The AMF is the regulatory and oversight body for Québec’s financial sector.
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Frédéric Alberro (514) 940-2176
Issuers, dealers, advisers and representatives: (877) 525-0337, choose option 9 for English, then 1 for industry
Consumers and investors: (877) 525-0337, choose option 9 for English, then 8 for consumers