RSPs: Never Too Early to Get a Head Start
Do you have teenage children or grandchildren who hold a part-time job? Don’t overlook the value of an early start with the registered Retirement Savings Plan (RSP).
If income earned from a part-time job is less than the basic personal amount for tax purposes, it may be easier not to file an income tax return since there are no taxes owing. However, if this earned income is not reported, the child loses out on the potential RSP contribution room.
Carry forward for future benefits.
If the child reports income but decides not to contribute to the RSP in the current year, the unused RSP contribution room carries forward. This may be beneficial as it can be used to make contributions in future years to reduce taxes when the individual is in a higher tax bracket. Building an RSP balance when children are young may provide additional benefits. In the future, they could access up to $25,000 from the RSP under the Home Buyers’ Plan to aid in purchasing a home or use RSP savings to help finance training or education under the Lifelong Learning Plan. As long as withdrawn amounts are deposited back to the RSP within specified time frames, the amounts will not be included in income.
RSP Deadline: March 1, 2018
Remember that RSP contributions for the 2017 tax year must be made by March 1, 2018. Contribution limits are based on 18 percent of your previous year’s earned income, to a maximum of $26,010 for 2017, less any pension adjustment or past service pension adjustment plus any pension adjustment reversal and unused contribution room carried forward. For the 2018 tax year, the RSP contribution limit increases to $26,230.