Welcome back! Last week we discussed Term Deposits and how to choose which one is best for you and your needs while still allowing you to earn some interest. This week, we’ll look at the ins and outs of Retirement Savings Plans.
Retirement Savings Plan (RSP)
A retirement savings plan is money you put away for your future retirement. It’s an investment that grows over time, and it will be up to you what type of investment you want to put those funds into, whether it’s a shorter or longer period of time before you’re ready to access those funds – hopefully on the deck of a lake house somewhere. Deciding on which type of RSP best suits your level of risk tolerance is something that our staff at Encompass Credit Union or our investment subsidiary, PlanWright Financial can help you with. Our team of experts can go over all your retirement goals and help you decide where to put your retirement funds. The best part of RSPs is that they’re tax exempt, which means that when you contribute to your retirement, that amount actually comes off your total income for the year, so you don’t pay taxes on those funds until you withdraw them. That’s pretty great, right?
The government sets the total contribution limits per year, so people with scads of cash can’t get around paying income tax, but those contribution limits are significant for the average investor. A great way to keep from really feeling the pinch of retirement fund planning is to set up a monthly contribution right off your paycheque, so you don’t notice as much, and you don’t pay have to pay the tax man at the same time! You have to keep in mind though, that if you withdraw funds from your RSP, you have to pay the tax on the funds then. Now, if you wait until retirement to do so, you’ll likely be in a much lower tax bracket than you might be during your best income-earning years.
If you’re new to RSPs, connect with our expert staff at Encompass or PlanWright to help you find the best option for you and your family. Or if you know what you want, you can open up an Encompass Credit Union RSP completely online!
Pro-tip: If you’re close to going into a higher tax bracket (and therefore paying more income tax on each dollar earned), you may want to consider an RSP Top Up Loan or an RSP Line of Credit to keep you from moving up to that next bracket. With the tax savings, you can pay off a portion of the loan (that’s money in your retirement fund instead of the government coffers), or pay off that line of credit over the course of up to one year.
Check back here next week when we’ll look at Tax Free Savings Accounts and Financial Planning/Investing!