What Is An RRSP – Part 4 (Final Part) – Miscellaneous

Miscellaneous

Income can be earned in many forms. When your savings accounts pay interest, that is income. When your mutual funds pay distributions, that is income. When your stocks pay you more stocks, that is income.

The amount you save by putting money in an RRSP depends on your marginal tax rate. The minimum tax savings will be 22% of your contribution—e.g., a $5,000 contribution would save you $5,000 × 22% = $1, 100. But the same $5,000 would save you

$1,400, if your marginal tax rate is 28%

$2,150, if your marginal tax rate is 43%

$2,500, if your marginal tax rate is 50%

• The amount of withholding taxes you pay by taking out money from an RRSP depends on the amount you are withdrawing. Follow the rate below:

Default rates in Quebec

$0–$5, 000: 21%

$5, 000.01–$15, 000: 26%

$15, 000.01 and up: 31%

All other provinces

$0–$5,000: 10%

$5,000.01–$15, 000: 20%

$15, 000.01 and up: 30%

• Although the registered account type looks very cool, many personal-finance columnists would argue that it is only tax deferred, not tax sheltered, because eventually, you pay taxes at a later date. There is no escape from paying taxes.

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