February 2020
RRSP & CCB, Double the Savings!
Buying RRSPs can be a bit more interesting: it can have more of an impact
than just saving you some tax money this year.
If you have children under age 18, you really should consider purchasing
RRSPs (Registered Retirement Savings Plans) before the March 2 deadline.
If you don't have children under 18, give this article to someone who does!
What makes RRSP contributions different compared to previous years? The
Canada Child Benefit (CCB) that changed July 2016 makes things more
interesting and puts more money in your pocket!
First a quick review of RRSPs.
Most people understand how they work: you make a contribution to your
RRSP (or a spousal RRSP) and you can deduct it from your income on your
tax return to reduce your taxable income, saving you tax dollars now.
Actually you are deferring the taxes until the time you take them out, but we
will focus on the immediate tax savings for now.
For the current tax year, you have until March 2 to make an RRSP
contribution and use the deduction on your income tax return.
Depending on your tax bracket, the savings vary: if your taxable income is
$48,000 or less, your tax savings are about 27%; if your income is $48,000
to $69,000, the tax savings are 33% and higher incomes save more in
taxes.
If you have the option to join a pension plan at work that matches some of
your contributions you definitely need to join it! You could triple your
savings!
What makes things interesting: those of you that have children under age
18. The lower your combined taxable income, the more you get from the
monthly Canada Child Benefit! Even more money in your pocket!
Let's look at a couple of examples.
Let's say your combined family income is $48 to 68,000 and you have two
children. If you are the higher income spouse,say $30-48,000, if you buy
$1,000 RRSP, your tax savings are 28% or $280 AND you also increase your
Canada Child Benefit by 13.50% for the year: you will get $11 more per
month starting July 2020, that's another $135 for 12 months; the RRSP tax
savings increased from 28% to 41%. Now we are talking some serious savings. You have the $1,000 in the RRSP and you get back $410 from the
government in combined savings.
If you have three children, the savings increase to 47%; if you have four or
more children, the savings increase to over 50%! You just got back over half
of your $1,000 RRSP!
Who potentially saves the most? Those families with combined income of
$48 to 68,000 with one spouse earning $48-68,000 and you have four or
more children. Your savings could be over 56%!
From a tax planning point of view it may make sense for families to consider
using RRSPs to reduce their taxable income every year. You would defer
taxes and increase your CCB starting in July.
I encourage families in January and February to do some tax planning “what
ifs” and estimate the total savings from RRSP purchases. It can be more
than just income taxes saved from now on. It may even be worth
considering an RRSP loan to help save for your retirement and get maximum
income tax and CCB savings now!
If you want some help, call or email us or stop by our office and we can
provide an estimate of your overall savings. We will need your combined
family net income for 2019 (look at year-end pay statements). If we already
have your tax info on file from 2018, we can do some quick estimates for
you.
If you are a grandparent, maybe this would be a good way to help your
children and grandchildren financially, by helping them buy an RRSP now.
Anni Markmann is a Personal Income Tax Professional and Certified Financial
Planner; living, working, and volunteering in our community. Contact us at
204.422.6631 or 36 Dawson Road in Ste Anne (near
Clearview Co-op) or info@sataxes.ca
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