D. Smith: RRSP deadline March 1

The deadline for making your RRSP contribution is March 1, 2011—you can use the contribution for the tax year of 2010, or carry it forward for future years.

The maximum limit for RRSP contributions in 2010 is 18 per cent of your earned income, to a maximum amount of $22,000.  

Check your Canada Revenue Agency notice of assessment for any RRSP carry forward from previous years, as this deduction room can be carried forward indefinitely. 

If you are a member of a company pension plan or a deferred profit sharing plan, your RRSP deduction limit is reduced by your previous year’s pension adjustment.

Spousal RRSPs are very effective for splitting income in retirement.  

The higher income earner can maximize the tax deduction allowed on his or her tax return, and maximize the contribution to a spouse with a lower earned income.  

If you withdraw money from your RRSP, the contribution room is lost. Upon a RRSP withdrawal, the financial institution is required to withhold a certain percentage of the gross amount redeemed, based on the amount of withdrawal; 10 per cent on amounts up to and including $5,000; 20 per cent on amounts over $5,000 and up to $15,000; and 30 per cent on amounts over $15,000.  

The following year after the registered withdrawal, you may still owe CRA additional tax dollars based on your annual marginal tax rate.

If you over contribute to your RRSP, CRA can charge a one per cent penalty tax for every month you are in an over contribution situation.  

If you find you have over contributed, withdraw the excess money as soon as possible to avoid penalty charges.

The home buyer program that allows you to withdraw up to $25,000 from your RRSP to buy or build a qualifying home for yourself, or for a related person with a disability. You have to repay all withdrawals to your RRSP within a period of 15 years. The repayment schedule is based on equal repayments until your HBP is zero.  

If you do not repay the amount due for a year, this amount must be included in your income for that year.

You can also withdraw funds from your RRSP from the Lifelong Learning Plan. You must own an RRSP, be a full-time student, a resident of Canada, and enrolled in a qualifying program at a designated educational institution. 

You can participate in your own plan, or spouses can participate for each other. Each of you can withdraw from your RRSPs up to the annual LLP limit of $10,000 in a year, and up to the total LLP limit of $20,000 over the period you are participating in the LLP.

Another tax strategy is to take advantage of the federal pension credit limit of $2,000 for individuals over the age of 65.  

You can convert a portion of your RRSP to a RRIF to receive qualified pension income, or you can use an insurance GIC after age 65, instead of a bank GIC, to qualify for the federal pension credit.

Doreen Smith is a Certified Financial Planner with Capri Wealth Management and Manulife Securities Investment Services Inc.    

860-7144, ext. 114