An RRSP is a great way to save for retirement and cut your tax bill, but there are other ways you can use your RRSP to achieve your goals.
For most people, an RRSP is a way to save for retirement and pay less income tax. Although RRSPs remain a great tool for retirement planning, there are some other really useful things you can do with your RRSP. Check out some of the other ways you can use your RRSP to achieve your financial goals:
1. Buy your first home with the RRSP Home Buyers’ Plan
One of the great features of RRSPs is the ability they give first-time home buyers to co-ordinate their RRSP strategy with their home purchase. Under the Home Buyers’ Plan, you and your spouse can essentially each borrow up to $25,000 from your RRSP to buy your first home. For example, Melissa would like to buy a home in five years. She is planning to save about $20,000 for a down payment by putting away $300 per month.
If Melissa puts that $300 per month ($3,600 per year) into an RRSP (assuming she has the contribution room), she will get a 36% tax savings based on her marginal tax rate, which works out to a tax refund of $1,296 per year. In five years, Melissa will have not only $20,000 in her RRSP to borrow for the purchase of her first home, but also an extra $6,500 from tax savings.
When you borrow money from your RRSP under the Home Buyers’ Plan, you must pay the money back over a 15-year period. In Melissa’s case, she has to put back $1,333.33 per year for 15 years; if she misses a payment, she must pay tax on that amount. She will also miss out on 15 years of tax-sheltered growth on that $20,000.
2. Go back to school with the Lifelong Learning Plan
Not only can an RRSP be used for retirement or to buy your first home, it can also be used to fund your or your spouse’s education under the Lifelong Learning Plan. Similar to the Home Buyer’s Plan, any withdrawals for the purpose of training or education are tax free, provided you use the government form RC96… Click on the following link to read more: