RRSP Essentials: Everything you need to know in one place

We all want to enjoy a comfortable retirement, and planning is key to making that dream a reality. However, according to a recent survey conducted by Angus Reid, not everyone feels confident in their ability to get there. Over half (51%) of Canadians reported that they believe they’re behind in their retirement savings.

The good news is, no matter where you are in your savings journey, Registered Retirement Savings Plans (RRSPs) can be a great tool to help you reach your goals. With their tax advantages and other benefits, RRSPs offer solid savings potential—but before investing in RRSPs, there are important rules and guidelines to keep in mind to make sure you make the most of them.

What is an RRSP?

First introduced in 1957, an RRSP is a savings plan registered with the Canadian federal government that allows individuals to save for retirement over the course of their working lives. It is different from an average savings account in that any revenue generated within the account is tax-deferred until the money is taken out, and whatever you contribute over the course of the year is tax-deductible from your income.

RRSPs can be set up through any financial institution. They will advise you on the types of RRSPs and what investments they contain. Some financial institutions may also offer the option for a self-directed RRSP, where you can control the assets within the RRSP and make investment decisions yourself.

Overall, there are three different types of RRSPs:

• Individual RRSP: An account that is registered in your name.
• Spousal RRSP: An account that is registered in the name of your spouse, but that you can contribute to.
• Group RRSPs: Plans that employers can offer employees to save for retirement as part of their benefits package.

While RRSPs were designed as a way for Canadians to save for retirement, they can also be leveraged for other goals, for example, your first home through the RRSP Home Buyer’s Plan or for continuing education through the RRSP Lifelong Learning Plan.

What are the benefits of an RRSP?

RRSPs can be great for anyone looking to build wealth and secure their financial future. While they are not the only investment option for Canadians saving for retirement, RRSPs offer some unique advantages that make them the first choice for many. For example:

• RRSPs allow you to pay less income tax. Each year, the amount that you contribute to your RRSP can be deducted from your taxable income. This reduces the amount of income that you are required to pay taxes on, in some cases even lowering your tax bracket.
• RRSPs offer tax-deferred investment growth. You do not have to pay taxes on funds until they are withdrawn from your RRSP, which means that if you hold investment products in your RRSP, you can enjoy the advantage of compounded interest and growth over the course of your prime earning years.
• RRSPS have a higher annual contribution limit than some other registered accounts, such as Tax-Free Savings Accounts (TFSAs), and you can carry over any unused contribution room.
• RRSPs offer flexibility. RRSPs offer a wide range of investment options that can be held in the account, including mutual funds, Guaranteed Investment Certificates (GICs), savings bonds, and some alternative investments, including REITs. These allow you to customize your portfolio based on your risk tolerance and financial goals.

How do I open an RRSP, and what are the contribution rules?

Any Canadian resident who has earned income and files a tax return is eligible to set up and contribute to an RRSP. While you can open an RRSP at any age over 18, the consensus is that the earlier, the better, so that you can take advantage of tax-deferred compound interest for as long as possible.

Individuals can contribute to their RRSP up to the end of the year they turn 71. After that, any funds in an RRSP must be withdrawn, transferred into a plan that provides income, such as a Registered Retirement Income Fund (RRIF), or used to purchase a life annuity.

How much you can contribute annually is subject to an RRSP contribution limit. For 2024, the RRSP contribution limit is 18% of your previous year’s earned income, up to a maximum of $31,560. The RRSP contribution deadline is always 60 days past December 31 of each tax year.

Any unused contribution amounts can be carried over indefinitely. For example, if your contribution room was $10,000 in 2023, but you only contributed $7,000, the $3,000 you didn’t use will be added to your limit for 2024. To find out your RRSP contribution limit, check your most recent Notice of Assessment from the Canada Revenue Agency (CRA) or check your CRA My Account in the RRSP and TFSA section.

Can I make withdrawals from an RRSP?

While RRSPs are designed for long-term investments, it is possible to make an RRSP withdrawal at any time, so long as your funds are not in a locked-in plan. Before you make an early RRSP withdrawal, however, it is very important to understand withdrawal rules and the potential tax implications, which may include:

• Paying a withholding tax. Depending on where you live in Canada and how much you withdraw, this could be anywhere from 5-30%.
• Being taxed on withdrawals at your current rate: When you make a withdrawal, it is considered income, and you will be taxed at your current income tax bracket, vs your retirement income bracket.
• Losing out on tax-deferred compounding.
• Losing contribution room. Once you make a withdrawal, you cannot add it back to your overall contribution room.

There are a few exceptions where making an early RRSP withdrawal will not result in being taxed immediately. For example, if the funds are being used to buy your first home or to finance your education.

Enhancing RRSP growth with private alternative investments

One of the benefits of RRSPs is that they allow for a range of qualified investments, including some private alternative investments. For example, RRSPs can be a channel for investing in REITs.

Investing an RRSP in REITs can be a smart option for investors looking to diversify their portfolios and mitigate volatility through exposure to real estate. As private alternative investments, REITs do not fall into the conventional categories of stocks, bonds, or cash assets. They offer investors the ability to allocate their funds into multiple real estate assets, spread out geographically and diversified by type of property. Their value is tied to the underlying value of these real estate assets as well as their respective cash flows, which can create a more stable foundation for your RRSP to grow.

Investing in a private alternative investment through your RRSP can allow for further potential tax savings. When held in an RRSP, investment funds are tax-sheltered for so long as the investment remains within the account. Investors can benefit from tax deferral and tax-free reinvestment until retirement.

Skyline currently offers three private REITs that are registered account eligible:

• Skyline Apartment REIT is a portfolio of professionally-managed multi-residential properties in secondary and tertiary Canadian markets.
• Skyline Industrial REIT is comprised of professionally-managed light industrial properties along major Canadian transportation corridors, with a focus on logistics and warehousing.
• Skyline Retail REIT is a portfolio of professionally-managed retail properties in secondary and tertiary Canadian markets, with a focus on ‘everyday essential’ brands

Skyline also offers Skyline Clean Energy Fund, a portfolio of professionally maintained clean energy-producing assets across Canada. Skyline Clean Energy Fund is also registered account eligible.

Skyline’s private alternative investments have been providing investors with stable returns since their respective inception dates. By investing in one of Skyline’s private alternative investments, investors can take advantage of portfolio diversification, historical stability, and tax advantages.

When it comes to retirement planning, there is no one-size-fits-all approach. Everyone’s plan will depend on their personal financial goals, risk tolerance, and time horizon. With the potential for tax advantages and long-term growth, RRSPs can be a powerful tool in your retirement planning journey—especially when combined with other investment options such as private alternatives.

As with any investment, it is important to speak with your financial advisor to determine the right plan for you.

About Skyline Group of Companies

Skyline Group of Companies (“Skyline”) is a fully integrated asset acquisition, management, development, and investment entity. It is comprised of companies that provide services in real estate management and development, as well as clean energy management and development. Skyline currently manages more than $8.95 billion* across its real estate and clean energy platforms.

With approximately 1,000 employees across Canada, Skyline works to provide safe, clean, and comfortable places for tenants to call home, great places to do business, sustainable solutions for a greener future, and an engaging experience for its investors.

View Skyline’s 20^th Anniversary celebration video to see how Skyline is grounded in real estate, powered by people, and growing for the future.

For more information about Skyline Group of Companies, please visit SkylineGroupOfCompanies.ca.

*As at September 30, 2024