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Advanced Strategies for Registered Retirement Savings Plans (RRSPs)

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You put money into a Registered Retirement Savings Plan (RRSP), which automatically reduces your taxes and Bam! Instant Tax Refund (tm). The tax break is why most of us make our first contribution to an RRSP, and that motivation continues every year we're earning an income and want to defer tax payments.

The good news is that, if you're strategic, there are even more benefits that can be gained. As your portfolio gets larger or more diverse and your life situation changes, there are a few RRSP quirks you may want to take advantage of.

Spousal or Common-Law RRSP

You can set up a spousal or common-law partner RRSP. You can then contribute into your spouse or common-law partner's RRSP; you get the deduction, but they own the plan. Generally, the partner with the higher income will contribute; this allows a higher tax reduction when contributing and a lower tax bill when your spouse or common-law partner withdraws the money, as they will presumably be in a lower tax bracket.

Excess Contributions

You may inadvertently put in too much money into your RRSP. If so, withdraw the amount as soon as possible. There are taxes assessed for any amount over $2,000 in excess of your limit; the tax is one per cent of the excess for each month the excess exists. This will accumulate quickly. After a year, 12 per cent or almost one-eighth will be taxed away.

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Advanced Strategies for Registered Retirement Savings Plans (RRSPs) originally appeared on Walletpop Canada on Thu, 14 Feb 2013 09:00:00 EST. Please see our terms for use of feeds.

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