How To Open Registered Retirement Savings Account

When someone is considering retirement, they generally do not think about everything that this would entail

. Most people are not aware that only a small portion of their income for retirement will come from the government. This is usually only about 30 percent. Another 30 percent would come from the employee pension plan but most individuals do not have a pension plan. In this case, 70 percent of retirement income would have to come from the individual's investments. Which is why is in necessary to understand how a registered retirement savings plan (RRSP) actually works.

The first detail is reducing the amount of income tax that is withheld. This done by contributing money to the RRSP through the employer's payroll deduction option. This allows the individual to pay less income tax throughout the year instead of overpaying and getting a tax refund.

Although it is important, many people do not actually know what they are able to make a yearly contribution to their RRSP. This can be done on the first day of the year. Many people wait until late February or early March, after they are told what their yearly contribution limit is.

This is not the case. If the contribution limit is exceeded, the individual will notified. It is also important to know that any unused contribution is allowed to be carried over into the future year.

There are many different eligible investment options for an RRSP. These include investment certificates, shares on the Canadian stock exchange, government bonds, and corporate bonds. An individual can also invest in Canadian based mutual funds as long as they meet specific guidelines set by the government.

The last thing to know is that when it comes to couples, a person can contribute directly to their husband or wife's RRSP. They can do this as long as the couple does not exceed the annual contribution limit. When the owner of the RRSP reaches retirement age and has to convert the RRSP into a maturity option, many people do not know that the RRSP can be put in the younger spouse's name, but it can.

When considering a registered retirement savings plan, please consider these details. Using the information provided, it is possible for a person to make sound investment decisions. When planning for retirement, it is never too soon to start thinking about the future. By doing so, it will lead to a comfortable and enjoyable retirement.

by: Derek Munday

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