RRSP
1) A RRSP is a Registered Retirement Savings Plan, this is meant to shelter investments, allowing them to grow tax free until you retire. An RRSP doesn’t only hold cash. It can also hold stocks and mutual funds. The only tax you pay on an RRSP would be when you make a withdrawal. One of the benefits of an RRSP is to reduce your taxable income. For example, if you make $90,000 in a year and don’t contribute any money into a RRSP, you will be taxed on $90,000. If you contribute $10,000 into a RRSP, you will be taxed on $80,000, at a lower rate.
2) Your RRSP limit is determined by a set percentage or a set amount. It can’t be more than 18% of your earned income to a maximum value for that year, or can’t …show more content…
2) Albert Pineapple’s tax rate currently is 25.3%, and his tax rate will be most likely $570.52 per month for Old Age Security taxes. He will pay 23.96% or $22,760, upon retirement.
3) If Albert Pineapple is investing in his RRSP from his income, it will reduce the amount of income tax he will have to pay. If Albert is making withdrawals from his RRSP, he will be paying up to 30% tax on this income. Yes, I think it is beneficial for Albert to be investing in a RRSP at this point in time because he is so young and has a high income. If he invests in it, he will be reducing his income tax rate and is saving up for retirement.
4) I would not advise Albert Pineapple to invest in a RRSP right now, possibly ever. If he will be making $95,000 a year in retirement, there is no need to invest in a RRSP.
Investing with TFSA:
1) The maximum amount an individual can invest is $5,500 per year, which would be 7.33% of Albert’s annual salary. Since Albert had not once contributed to a TFSA, he is able to use the unused contribution room from prior years. This will let him invest the maximum of $57,500 which is up to 76.66% of his annual …show more content…
Since he is confident that he will have an amazing pension plan and has retirement savings, being able to withdraw any amount at any time will provide him a better income now than when he is retired. The max contribution limit is more than half his annual salary, he can decide not to invest it all in one year, providing him extra room to invest later on in his life. With him starting to invest young, any income he earns is tax free, while also being able to withdraw from his account to increase his contribution room for the next year. He can also benefit from the fact he does not need to save much up since he has a good pension plan, while also adding to that retirement savings with the money he can withdraw from his account. If later in his life he has a spouse and needs more contribution room, he can have his spouse open another account and use that to have a larger contribution room. Since his income tax is around 30%, having a tax free account for investing, can benefit the tax he has to pay.
Investing with a Non-Registered Account:
1) Albert can invest as much money as he wants into a non-registered account, there is no contribution limit.
2) Albert will be taxed $25,689 with his current salary. When he is retired, he will not pay for employment income tax, but he has to pay $1,716 income tax.
3) Investing in a non-registered account would be best when you have a high income or lots of money