Adrian Mastracci, portfolio manager at KCM Wealth Management, says “Treat your RRSP as kindly as you can. You’ll be depending on it during the marathon of retirement."

Vancouver, BC (January 17, 2007): The venerable RRSP has evolved into a vital foundation of retirement portfolios. It is celebrating a half-century of birthdays, having been humbly introduced back in 1957 at the starting deposit of $1,500. A Happy 50th Birthday indeed to our retirement workhorse!

Humourist Gene Perret once wrote, "Retirement means no pressure, no stress, no heartache... unless you play golf."

Adrian Mastracci, fee-only portfolio manager at KCM Wealth Management in Vancouver, says, “Many investors have accumulated considerable worth in RRSPs. Values to $500,000 are common. Often a good deal more.”

Self-employed investors are particularly sensitive to RRSP provisions. It's usually a substitute for the employer pension. Understanding the RRSP makes it easier to plan the retirement aspirations.

RRSPs ought to receive special attention year after year. Especially, when plenty of important decisions depend on them. Here are three important areas to consider:

1. Know the limits

Your RRSP entitlement for a specific year is based on your “earned income” from the previous year. A somewhat confusing term for many. Thankfully, there is a form for this calculation (T1023).

RRSP entitlement for 2006 is 18 percent of your 2005 earned income, to a maximum of $18,000. This amount is reduced by your pension adjustment. Past service contributions may also affect it.

The maximum 2006 RRSP entitlement is reached with earned income of $100,000 in 2005. The RRSP deposit must be made by March 1, 2007 to be deducted in the 2006 income tax filing.

Include the unused RRSP contribution room accumulated from previous years. The $2,000 lifetime overcontribution is also allowed as part of the RRSP deposit.

However, a penalty of 1% per month applies to RRSP contributions that exceed allowable limits. Ouch!

The table below illustrates the progression of RRSP limits:

2. Review the approach

Ideally, a family goal is to achieve similar taxability of retirement incomes for each spouse. The new proposal of splitting income that qualifies for the $2,000 pension income deduction is helpful for many.

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.

Spousal RRSPs can play a vital part in equalizing a family's retirement income, especially where one spouse is in a low tax bracket. The draws from such a spousal RRSP don't have to be split.

Deposits can be made in cash or in kind. However, non-cash transfers must be qualified investments for RRSPs. There are also tax implications to consider for non-cash contributions.

You can deduct up to the allowable RRSP room 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 room can be carried forward until funds are available for the deposit. Subject to the rules of converting the RRSP to a RRIF for those who turn age 69 during 2007.

The notice of assessment for the 2005 tax filing contains the 2006 RRSP room information. The $2,000 overcontribution amount is not included in the notice of assessment amount.

3. My sage advice

Never place those enticing income tax provisions ahead of sensible investment strategies. Resist rushing into something if you’re not comfortable.

Be aware of the investment risks taken inside the RRSP. Your retirement nestegg depends on it. Some investments, like equities, may make more sense outside the RRSP.

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-start. RRSP deposits for 2007 can be made any time between now and February 29, 2008. A request (form T1213) can be sent to Canada Revenue Agency to reduce payroll taxes after the 2007 deposit is made. It's like getting a tax rebate in advance.

Treat your RRSP as kindly as you can. You’ll be depending on it during the marathon of retirement. And to enjoy your golf game without distraction.

I welcome your questions comments and opinions.

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.