The Vault
Maximize your RSP, maximize your retirement
by Graham Barber

The purpose of your RSP is to give you the opportunity to grow your retirement savings in a tax free environment. First, that means you are saving the entire dollar you contribute. Not the 67 cents or so it becomes after tax*

Second, this dollar grows tax free, while it remains in your RSP. Third, your earnings, since they remain in your account, are then also earning returns. Every dollar of savings and growth can generate returns, otherwise known as compound growth.

To take full advantage of this powerful savings tool, here are five tips to help you max out your RSP contributions;

1. Know how much you are entitled to contribute each year.

Every year, Canadian Revenue Agency (CRA) sends you a Notice of Assessment indicating your RSP contribution limit for the current year. If you do not have this Notice, you can visit the Canada Revenue Agency website at www.cra-arc.gc.ca for an update.

Currently you may contribute 18% of your 2004 earned income, up to a maximum of $16,500 (not including any unused RSP contribution room)**

2. Catch up on unused RSP contributions

You can do this by borrowing money to invest in your RSP. The cost of borrowing money for your RSP is often lower than the longterm returns you may get in your RSP. Speak with your financial advisor to find out if this option is right for you.

3. Split your income with your spouse

Income splitting involves one family member in a higher tax bracket shifting income to another family member in a lower tax bracket. In this way, you can build up RSP savings in your spouse's name. When you retire, the total tax paid by both of you may be reduced.

4. Make contributions regularly instead of once a year

Many Canadians find it difficult to contribute to their RSP in February because they are still paying their December bills. Contributing small amounts every pay cheque instead of in one lump sum makes saving easier to do.

5. Make your contributions automatic using pre-authorized contributions

When you pre-authorize contributions, a fixed amount (chosen by you) is transferred automatically from your bank account to your RSP.

* Based on income taxed at 33%

** For taxation year 2005.

The proceeding information was provided by Graham Barber, Branch Manager of Scotiabank, Alcona Branch.

The Scotiabank, Alcona Branch, is located at 1161 Innisfil Beach Road, (705) 431-6116. The Vault is a weekly series of articles provided by Graham Barber with financial advice and suggestions.