How much do you really know about your RRSP?

March 25, 2015 • Investment Planning, Retirement Planning

Most people know that contributing to a Registered Retirement Savings Plan (RRSP) is a great way to save for their future. But RRSPs are full of lesser-known benefits as well as potential pitfalls should you run afoul of the rules. Try this True/False quiz to discover important gaps in your knowledge and make the most of your RRSP.

True or false?

1. You can make your entire RRSP contribution for 2015 and 2016 on the same day.
❑ True  ❑ False

2. You don’t have to claim your tax deduction in the same year you make the contribution. Deductions can be carried forward even past age 71.
❑ True  ❑ False

3. You need to have reached the age of majority (18 or 19 depending on province) in order to open an RRSP. 
❑ True  ❑ False

4. If you withdraw funds from your RRSP for a medical emergency or business opportunity, you lose that contribution room forever. 
❑ True  ❑ False

5. In determining an annual RRSP contribution amount, alimony or spousal support received in the corresponding tax year qualifies as earned income. 
❑ True  ❑ False

6. You can hold gold coins in your RRSP. 
❑ True  ❑ False

7. Holding dividend-paying U.S. investments in an RRSP has tax advantages over holding them in non-registered accounts or Tax-Free Savings Accounts (TFSAs). 
❑ True  ❑ False

8. Under the Home Buyers’ Plan (HBP), a couple can withdraw a combined $50,000 from their RRSPs, without paying tax on the amount, to purchase or build a vacation home. 
❑ True  ❑ False

9. When a contribution is made to a spousal RRSP, the spouse receiving the contribution also receives the tax deduction. 
❑ True  ❑ False

10. If you are an adult and your mother or father leaves RRSP proceeds to you directly, the proceeds enter into your taxable income for the year. 
❑ True  ❑ False

How did you do?

1. True. RRSP contributions made during the first 60 days of the year can be claimed either for the previous calendar year or the current year.

2. True. RRSP tax deductions can be carried forward to any future year. By applying the deduction in a year when you know your marginal tax rate will be higher, you may get a greater tax benefit.

3. False. There’s no minimum-age requirement for opening an RRSP. So if your minor child has earned income and files a tax return, he or she can open an RRSP. Even if your child does not want to open an RRSP, filing a tax return generates contribution room that can be used in the future.

4. True. While TFSA contribution room is restored the year after a withdrawal, RRSP contribution room is lost forever. Exceptions are when RRSP withdrawals are made under the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP).

5. True. Other examples of non-salary sources that qualify as earned income include royalties, research grants, and rental income.

6. True. Gold and silver bullion in the form of coins, bars, or certificates are RRSP-eligible. Note that coins must be produced by the Royal Canadian Mint.

7. True. In an RRSP, no withholding tax is deducted from dividends on shares of U.S. corporations. Withholding tax is deducted when such investments are held in a non-registered account or TFSA, though for non-registered investments the tax can be recovered through the foreign tax credit.

8. False. The Home Buyers’ Plan is available only for a principal residence.

9. False. With a spousal RRSP, the spouse who makes the contribution receives the tax deduction.

10. False. The adult child would receive the full value of the RRSP proceeds and the estate pays the tax. However, if the estate is unable to cover the tax bill, Canada Revenue Agency could seek payment of the amount owing from the beneficiary.

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