Adrian Mastracci, investment counsel at KCM Wealth Management, says “Accumulate as much as you can in your RRSP. Yes, you will pay tax when the money comes out. It will be a nice problem to have!"

For Immediate Release

Vancouver, BC (February 6, 2004): From its humble introduction back in 1957, the RRSP has evolved into a cornerstone of retirement planning.

Adrian Mastracci, investment counsel at Vancouver's KCM Wealth Management, comments, “Many RRSP’s have accumulated considerable worth. It's not unusual to find values around $200,000 to $500,000. Often a good deal more.”

“It is the major retirement nestegg for a multitude of investors, particularly the self-employed,” adds Mastracci.

“Understanding the RRSP makes it easier to plan your retirement aspirations,” notes Mastracci, “After all, the combination of the RRSP and RRIF will be with you much of your investing lifetime.”

“While the RRSP is a frequent topic of discussion, a little refresher can help,” states Mastracci, “Especially, when plenty of important decisions are about to be made.”

“The RRSP ought to receive special attention year after year,” observes Mastracci.

Here are some vital considerations:

The basics
Your RRSP entitlement for a specific year is based on your “earned income” from the previous year. A somewhat confusing term for many.

Earned income includes your salary income, business income, professional income, commission income, fishing income and farming income. Also included are active partnership income, taxable support payments received, employee profit sharing plan allocations, net rental income, net research grants and royalties received by inventors and authors.

The sum of these incomes is reduced by your business losses, net rental losses and deductible support payments to arrive at the earned income figure. Thankfully, there is a form for this calculation.

The limits
As an example, your RRSP entitlement for 2003 is 18 percent of your 2002 “earned income” to a maximum of $14,500. This figure is reduced by your pension adjustment. Past service contributions may also affect the calculation.

The maximum 2003 RRSP entitlement is reached with earned income of $80,500 in 2002. The RRSP deposit must be made by March 1, 2004 to be deducted in your 2003 tax filing.

Don’t forget the unused RRSP contribution room accumulated from previous years. The $2,000 lifetime overcontribution is also allowed as part of your RRSP deposit.

A penalty of 1% per month applies to RRSP contributions that exceed your allowable limits. Ouch!

The table below illustrates the progression of RRSP limits introduced in the 2003 Federal Budget.

The approach
RRSP deposits can be made to your account, the spousal account, or both. A family could make all RRSP deposits to one spouse, and later switch to the other. Spouses include common law partners.

Deposits can be made in cash or in kind. However, the non-cash transfers must be a qualified investment for RRSP’s. There are also tax implications to consider for such contributions.

You can deduct an amount up to the allowable RRSP deposit in a particular year’s tax return. The balance is carried forward for deduction in a subsequent year. This election is found in your tax return.

The unused RRSP deposit room can be carried forward until funds are available for the deposit. Subject to the rules of converting the RRSP to a RRIF if you turn 69 during 2004.

Your notice of assessment received for a tax filing contains the RRSP deposit information for the following tax year. Everyone should make sure that those figures are correct. The $2,000 overcontribution amount is not included in the tax notice of assessment.

The sage counsel
Follow an RRSP investment plan suitable for you and co-ordinate it with the rest of your holdings. Understand the investments currently owned and those being contemplated.

Resist rushing into something you’re not comfortable with. In addition, never place tax strategies ahead of prudent investment strategies.

Be aware of the investment risks taken inside your RRSP. Your retirement nestegg is at stake.

Plan on some of your investments to result in losses. Moreover, don't get attached to your investments. Know when to fold, take the medicine and sell the losers.

Well designed diversification is a key of successful RRSP portfolios. Make your diversification strategy your friend in uncertain times like the present. And, better yet, for the long run.

If you borrow, the interest paid on the RRSP loan is not deductible. Hence, it’s wise to repay it as soon as possible. The tax rebate can help pave the way.

“Get a jump on your planning as the finances permit,” suggests Mastracci, “The RRSP deposits for 2004 can be made any time between now and the first 60 days of 2005. The sooner, the better.”

“Accumulate as much as you can in your RRSP,” remarks Mastracci, “Yes, you will pay tax when the money comes out. It will be a nice problem to have!”

“Treat your retirement nestegg as kindly as you can,” summarizes Mastracci, “You’ll be depending on it during the marathon of retirement.”

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.