When we think of RRSP, we think of retirement. And for young people, retirement can still be far away. However, 18-30 year olds who invest in an RRSP can benefit from it now. Explanations.
When it comes to financial planning, although each case is unique, there is a universal recipe: start investing early. And Alexanne Duchesne understood that well. “My parents always taught me to count. At 14-15 years old, they gave me a salary every week to teach me how to budget. » By aiming for maximum annual contributions to her Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP), this 27-year-old mechanical engineer’s investments could make some adults jealous.
The RRSP allows you to invest for retirement, but it also has tax advantages that can help you realize certain personal projects. It’s all a question of calculation – what are the savings in terms of taxes, credits, enhancement of certain government benefits or subsidies that will be generated – and, like everything related to financial planning, situations vary as much as people. “In terms of the RRSP, the big advantage is the deferral of taxation. But in the end, it will really depend on the project of each saver,” underlines Olivier Brunelle-Delorme, financial planner at Desjardins Wealth Management.
For the purchase of a first property
The property access plan (RAP) allows you to withdraw up to $35,000 from an RRSP to finance the purchase of your first property. The condition to be respected in order not to be taxed: put the money back into the RRSP within a maximum period of 15 years, starting 2 years after the withdrawal.
This is an option that Alexanne Duchesne is considering. “We will see if the RAP will be advantageous or not. If the RAP is not advantageous in my case, we will leave them there [les REER]. I already have a cashdown anyway. That would be a bonus. »
To finance a personal project
The RRSP can also be used to finance a personal project such as a sabbatical year.
PHOTO CHARLES WILLIAM PELLETIER, SPECIAL COLLABORATION
Olivier Brunelle-Delorme, financial planner at Desjardins Wealth Management
According to tax tables, the first $14,000 can be withdrawn tax-free. It’s a [solution de rechange] to the RRSP that we don’t really think about.
Olivier Brunelle-Delorme, financial planner at Desjardins Wealth Management
Mr. Brunelle-Delorme gives the example of a young person who earns an annual salary of $60,000 and who plans to take a sabbatical soon (to travel, start a business, or any other personal project). If he invests $7,000 in an RRSP for two years, this will generate a tax refund of approximately $5,000, giving him a budget of $19,000 for his sabbatical year. Considering that he will have no other source of income during this year without work, the $14,000 that was invested in an RRSP can be withdrawn without taxation.
To make other investments
The financial planner at Desjardins Wealth Management points out that the RRSP can have an interesting snowball effect for young people.
“The RRSP generates tax savings that can be used to, perhaps, contribute to the TFSA or, when you have children, use the tax refund to reinvest in the RESP [régime enregistré d’épargne études] and seek other subsidies, therefore using the same amount several times to contribute to a mixed strategy and invest in several projects or several schemes,” he explains.