Planning for retirement is crucial in order to ensure you can have the retirement lifestyle you envision. One important aspect to keep in mind during this planning is the associated tax benefits and implications. The following are some techniques of reaping tax benefits when saving for retirement in Canada.
1) Contribute to RRSP
The first of my tax tips for retirement in Canada is the Registered Retirement Savings Plan (RRSP). A RRSP is an investment account that allows Canadian taxpayers to save for retirement. The key advantage of this plan is the tax benefit that arises since the contribution amounts are tax deductible. Hence, a great strategy for both retirement and tax savings is to contribute fully (i.e. utilize all available contribution room) to the RRSP.
Another strategy is to save the RRSP deduction until retirement if you expect to receive large retirement amounts. The RRSP deductions will aid in lowering your marginal tax bracket during those years of increased income.
2) Utilize Spousal Plan – Tax Tips for Retirement in Canada
If you find yourself in a situation where you cannot contribute to your RRSP because you are 71 and older, you can still benefit from tax deductions by contributing to your spouse’s plan.
3) Contribute to Tax-Free Savings Account
Another method of saving for retirement is to contribute fully to the Tax-Free Savings Account (TFSA). Per http://www.tfsa.gc.ca/, Canadian residents can contribute $5,500 annually to the TFSA. The key advantage of this savings vehicle is that money can grow in the account and be withdrawn completely free of tax!
4) Apply for Old Age Security Benefits
The Old Age Security (OAS) program is the Canadian government’s largest pension program. The OAS pension is a monthly amount paid to Canadians who are at least 65 years of age and who meet the applicable requirements. The OAS Pension can be applied for on the Service Canada website.
As well, other than OAS pension, three additional OAS benefits are offered – Guaranteed Income Supplement, Allowance, and Allowance for the Survivor. More information regarding these benefits is available at http://www.servicecanada.gc.ca/eng/services/pensions/oas/index.shtml It is important to be aware about all the benefits that are available and to take advantage of those you qualify.
5) Claim your CPP payments
The CPP is a monthly pension amount paid to those who have contributed to the plan. When filing taxes for the year, taxpayers are provided with a tax credit for their CPP contribution made through employment or self-employment.
CPP pension amount can be applied for using the form, Application for Canada Pension Plan Retirement, which can also be found on the Service Canada website.
Other CPP benefits offered are CPP disability benefits and CPP survivor benefits. More information can be found on http://www.servicecanada.gc.ca/eng/services/pensions/cpp/index.shtml
6) Diversify Retirement Income
A strategy for maintaining a low marginal tax rate is to vary the retirement income sources. By receiving income from a mixture of both taxable and non-taxable sources, your taxable income can be kept low.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.