RRSPs help lower your income tax bracket
Like many Canadian wage earners, you may expect to receive an incomeincome cheap Saints jerseys free shipping
tax refund for 2007. Why not make your tax refund bigger by contributing to a Registered Retirement Savings Plan (RRSP) before the end of February?
How much bigger your tax refund would be from your RRSP contribution depends on which tax bracket you're in. The higher your income is, the bigger your refund will be.
That means you would pay income tax at 26.5 per cent on your first $37,178 of taxable income. On the remaining $7,822 of income, you would pay 35 per cent tax.
In this case, you might want to contribute and deduct $7,822 to lower your taxable income from $45,000 to $37,178. Your RRSP refund rate would be 3535 cheap Saints jersey
per cent. In other words, every $1,000 of RRSP that you contribute saves you $350 of income tax.
The threshold of the lowest bracket, $37,178, becomes a key dividing line for tax planning purposes.
Most Canadians manage to stay in the lowest tax bracket during their retirement, paying tax at 26 per cent (the rate for 2008). The newly introduced pension splitting option should allow many more retirees to be taxable only in the lowest bracket, after they shift up to half of their taxable pension and RRIF incomes over to their spouses.
You can maximize your tax savings if you claim a deduction on RRSP deposits at the rate of 35 per cent or higher while you are working.
Then, during retirement, you can benefit by paying only 26 per cent tax on withdrawals.
Generally, it is prudent to claim only enough RRSP deduction to reduce your taxable income to $37,178 but no lower.
However, some people may actually pay less than 26 per cent income tax when they make withdrawals.
Here are three ways to reduce the tax on withdrawals from RRSP savings:When you eventually convert your RRSP to a life annuity or a Registered Retirement Income Fund (RRIF), your withdrawals could qualify as income eligible for the pension credit. Normally you must be age 65 or older to be eligible.
The federal pension credit can save up to $300 income tax.
The accompanying Saskatchewan pension credit can save up to $110 of additional income tax.
Assuming you have no other employer pension benefits to generate the pension credit, these combined federal provincial tax credits can reduce the tax you would have to pay on your RRIF (or RRSP annuity) income.
Spousal RRSPs and pensionpension cheap Saints jerseys china
There are two ways to arrange for taxable retirement income to be reportable in the name of the lower income spouse. Through either a spousal RRSP or pension splitting, or both, you can save tax by taking advantage of the lower income spouse's low tax bracket (on the firstfirst cheap Saints jerseys from china free shipping
$37,885 of taxable income for 2008) especially if the spouse does not otherwise have enough income to make full use of medical or dividend tax credits.
Home Buyers plan
If you are saving money for the down payment to buy a new home, you'd claim an RRSP tax deduction when you make deposits. However, you can apply to make a withdrawal on a tax free (loan) basis, provided you repay your RRSP within a certain number of years.
Terry McBride is secretary of the local chapter ofof wholesale cheap Saints jerseys china
Advocis (The Financial Advisors Association of Canada).
He works at Raymond James Ltd., a member of the Canadian Investor Protection Fund. A recommendation of any strategy would only be made following a personal review of an individual situation. Seek independent advice for your tax related questions.