What Is An RRSP – Part 3 – Disadvantages of a Registered Account
March 25th, 2008 Posted in Retirement
Disadvantages of a Registered Account
- The account is registered with Canada revenue Agency (CRA). That’s where the term registered comes from.
- You are only allowed to deposit so much money.
- Withdrawals are restricted.
- You are taxed on the amount you withdraw. The more money you withdraw, the more taxes you pay. See withholding tax rates listed at the end of this chapter.
- You can’t keep this account forever. The account has to be terminated once you are 71, and you have to convert this account to a Registered Income Fund (RIF), from which you have to receive annual income by law. Also, you can take out all your money once you are 71, but this is not a good idea, as you have to pay hefty taxes.
RRSP Annual Limit
You can only invest so much money into your RRSP. The formula goes as follows:
A + B – C, where
A = Any unused portion of prior year’s contribution
B = 18% of prior year’s earned income (up to a maximum for that tax year as below)
C = Pension adjustment for the current year (RPP contributions, etc.)
Contribution Limit
2006 $18,000
2007 $19,000
2008 $20, 000
2009 $21, 000
2010 $22, 000
2011 indexed*
*Starting in 2011, the limits will be indexed for inflation
2 Responses to “What Is An RRSP – Part 3 – Disadvantages of a Registered Account”
By Howard Fitzwater on Jan 11, 2011
Two things – with an RRSP, the limit on how old you can be to take out the money should go up. If an older member of society wants to keep working, we should be encouraging them – not forcing them into early retirement. This is going to become an issue in the next decade or two. Secondly, you can put more money into the account, it will just be taxed as normal so there is no incentive, per se.
By patty moss on Mar 23, 2012
There is a misunderstood incentive, that refund the taxpayers are recieving, they think it’s a no loss investment. And why would the government increase the age limit… look at how much the government is making off this. Duh if they did that we would have to make up the difference by paying more taxes.