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Discussion Starter · #1 ·
What is the difference between RRSP & RSP & are they both considered "Locked-In Retirement Account". Also we are next to broke, but have an option of having some of dh pension benefits from someplace he no longer works either given as a deferred pension (but we're thinking this company may close down in which case he would lose that $) or he can put it into a "locked-in retirement account". So if we quickly open an rrsp so he's ensured to get this money, do we have to contribute a minimum amount? Is it even possible to put as little as $20 a month in?? Sounds funny I know & it's embarrassing to even ask, but I mean any amount would help wouldnt it? Can you just wait til the end of the year and put a little in? I mean we really can't afford another monthly payment, but if your allowed to just contribute however much you want no matter how little it could work. I know there are limits as to how much you can put in, but we wouldn't reach that limit at this time anyways. So remember this is for Canada. Please help!
 

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Here's what an RRSP is:


A Registered Retirement Savings Plan or RRSP is an account that provides tax property from income taxes.
RRSPs may reduce taxes in up to three ways:

  1. Contributions to RRSPs, up to limits described below, may be deducted from income before calculating income tax due.
  2. Income earned within the account (interest, corporate dividends, trust distributions, capital gains) is not taxed until money is withdrawn from the plan, allowing the plan to grow faster than the same investments would grow if they were held outside the plan and thus subject to tax.
  3. Money may be withdrawn from an RRSP in tax years when one is in a lower income-tax bracket because of lower income (due to retirement, unemployment, etc.) than tax years when one makes contributions.
And here's what an RSP is:

RSP Essentials | BMO Bank of Montreal

An RSP is the most effective retirement saving and investing tool available to most Canadians. It lets the money you invest grow unaffected by taxes until withdrawn. That means your money has the potential to grow faster and you’ll accumulate more than if you invest outside an RSP. What’s more, you’ll get a tax deduction for every dollar you put into an RSP, reducing your annual tax bill.

Here’s how it works.
Tax Sheltered Investment Growth

Investments in an RSP grow on a tax-deferred basis until money is withdrawn. The fact that your plan is “registered” with the Canada Revenue Agency allows you to benefit from this tax-deferred growth.

Outside an RSP, most investments are taxed. Interest is fully taxable, half of capital gains are taxable and dividends are taxable but eligible for the dividend tax credit. Inside an RSP, none of these taxes apply.

Because you pay no tax on investment growth while your money remains inside an RSP, your investments compound far more quickly. At the end of the road, that makes a huge difference.


Now I'm not sure what the difference is between the two since we haven't begun to save in either one yet, but a lot of the big banks in Canada have RSP and RRSP professionals that may be able to answer all of your questions.


I know you get a tax deduction for every dollar you put into an RSP, which would help a lot come tax time. I think you can also defer up to half of your RRSP to your spouse, which would be more easily found on the CCRA's website since it's a tax thing.
 

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What is the difference between RRSP & RSP & are they both considered "Locked-In Retirement Account".
The two terms are generally used interchangeably. A locked in account (LIRA or LRSP) is different from an RSP, it can not be cashed in until retirement age.

Also we are next to broke, but have an option of having some of dh pension benefits from someplace he no longer works either given as a deferred pension (but we're thinking this company may close down in which case he would lose that $) or he can put it into a "locked-in retirement account". So if we quickly open an rrsp so he's ensured to get this money, do we have to contribute a minimum amount? Is it even possible to put as little as $20 a month in??
No, you do not contribute anything else to the locked in account other than the amount transferred from his pension. The full amount including any earnings from the investment will be locked up until retirement, you do not make regular contributions to an LRSP. Just go to your bank and tell them you want to transfer in a locked in pension.


Sounds funny I know & it's embarrassing to even ask, but I mean any amount would help wouldnt it? Can you just wait til the end of the year and put a little in? I mean we really can't afford another monthly payment, but if your allowed to just contribute however much you want no matter how little it could work. I know there are limits as to how much you can put in, but we wouldn't reach that limit at this time anyways. So remember this is for Canada. Please help!
Whether or not contributing to an RSP is helpful to you in the long run depends on your current income. If your income is low, it is generally better to invest outside an RSP and pay the taxes now, rather than deferring them until retirement. RSPs become more beneficial as your tax rate increases. The TFSA is a better option for many people.

How long did your husband contribute to the pension in question?
 

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Discussion Starter · #4 ·
How long did your husband contribute to the pension in question?
His pension totals just over $4,000 he was not there very long. Even though its small, we don't want to lose it should the company close down and thats the reason we want to open something to put it in. Thanks for letting us know that we don't have to contribute anything other than the amount of the pension - very good to know. We have an appointment at the bank in just over a week.
 

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Just as an aside, if you usually get a refund at tax time, and can "prove it" to your employer and Rev Canada, you can request a decrease in tax withheld at source. Basically you would forfeit any refund you typically get, but have more money (for RRSP contributions) on a paycheque-to-paycheque basis. This doesn't work for everyone, but it's worth looking into.

When I was married and our kids were babies, we reduced tax withheld so that we could still top up RRSPs but forgo the refund. It helped a ton!
 

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His pension totals just over $4,000 he was not there very long.
Typically it is 2 years before a pension is vested. If he was there for a shorter period and the pension is not vested he should be able to withdraw it without locking in. In that case it could be transferred to a regular RSP or withdrawn in cash with taxes withheld. If he was not at the company very long please check to make sure that it really does need to be locked in before doing so, as a locked in account offers much less flexibility both now and in retirement.
 

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Discussion Starter · #7 ·
Typically it is 2 years before a pension is vested. If he was there for a shorter period and the pension is not vested he should be able to withdraw it without locking in. In that case it could be transferred to a regular RSP or withdrawn in cash with taxes withheld. If he was not at the company very long please check to make sure that it really does need to be locked in before doing so, as a locked in account offers much less flexibility both now and in retirement.
He was there just over 2 years ...
 

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Discussion Starter · #8 ·
We ended up investing the money into mutual funds that dh cannot touch until he retires ... we'll get statements quarterly ... felt kind of blind during the appointment, not knowing what we were doing etc, but feel confident that we made the best decision .. at least the money is his now should the company shut down in the future (which could be very likely given its history)
 
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