Understanding the Basics - Servus Credit Union

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Since mutual fund investments do and will fluctuate invalue, they don’t provide a guaranteed rate of return. Mutualfunds are not covered by deposit insurance. Sales fees,called front-end or back-end loads, can be charged on theacquisition or redemption of units. In addition, all mutualfunds pay management fees.*Available through dealers conveniently located in many credit unionsSelf-Directed PlanWith this kind of plan, you can make all your owninvestment decisions within a wide range of qualifiedinvestments. A trustee does all the administration workfor you. A self-directed plan may be uneconomical forthose with limited RRSP funds, because of the normaladministration and transaction fees.Self-directed plans are suitable for those with considerableinvestment experience and ample time to manage thefunds, or for those who want all their RRSP investmentswithin one plan.Plans involving mortgages usually incur substantially higherfees. It is permissible to hold within your self-directedRRSP a mortgage on any property you own (non-arm’slength mortgage) that is eligible for mortgage insurance.This will result in additional mortgage insurance, legal andpossible appraisal fees. Generally, you should only do thiswith more than $25,000 of RRSP funds, and should planfor the mortgage to exist for more than three years.More than one self-directed RRSP can invest in thesame mortgage. Only in certain pension jurisdictionscan Locked-in RRSPs, LIRAs, and RLSPs (see page 21)be invested in a non-arm’s length mortgage.Group (Employer-Sponsored) PlansGroup RRSPs have become popular in recent years asmore and more employers make them available to theiremployees. They can have all the same investmentoptions as the other types of plans. An individual accountis maintained within the group RRSP for each participatingemployee. A group RRSP can also provide for an employeeto contribute to an account in their spouse’s name.Contributions to a group RRSP by an employer form partof the employee’s deduction limit.UNDERSTANDING ALL THE BASICS 13
They are also taxable income to the employee, offsetby receiving an RRSP contribution receipt. You may notbe able to withdraw the employer’s contributions and/oryour own contributions, and the income thereon, as longas you remain in that employment. Additional restrictions(such as requiring that the employer’s portion be used toprovide a pension at retirement) are not allowed.Contributions to group RRSPs by employers andemployees are usually voluntary. Employer contributionsvest immediately. If employees contribute throughpayroll deduction, the income tax deducted from theirpay cheque is reduced at the same time, recognizing thereduction in their taxable income.When the employment terminates, any restrictionsimposed by the employer on withdrawal or transferof the funds from the group RRSP cease.Income Tax ConsiderationsCapital gains or dividends earned in an RRSP increaseits value. All of the funds eventually coming out of anRRSP must be declared as income for tax purposes.Therefore, you will eventually pay tax on 100% of anycapital gains and a full rate of tax on any dividends realizedwithin an RRSP. Compare this to investments held outsidean RRSP. Only one half of capital gains would be taxed,and you would pay a reduced amount of tax on thedividends by being able to claim the dividend tax credit. ATax-Free Savings Account (TFSA) is a registered plan thatis available to tax shelter investment income and capitalgains. Contact your credit union for additional informationon this new registered product.What Does an RRSP Cost?Always be sure to ask about fees before deciding onan RRSP. Not all issuers charge fees, but many do.Here are a few of the most common charges:Front-End LoadMany issuers sell RRSPs through commissionedsalespeople. The sales costs are often deducted fromyour contribution. Only the net amount is actually investedfor you.14UNDERSTANDING ALL THE BASICS
Page 2 and 3: This Understanding All The Basics b
Page 4 and 5: Table of ContentsRRSPWhat is an RRS
Page 6 and 7: RRSPWhat is an RRSP?A Registered Re
Page 8 and 9: What is Earned Income?Your RRSP ded
Page 10 and 11: The greater the future benefits pro
Page 12 and 13: Part or all of your RRSP deduction
Page 14 and 15: Over-contributionsOver-contribution
Page 16 and 17: • Provincial legislation- The Alb
Page 20 and 21: Back-End LoadInstead of a front-end
Page 22 and 23: Form T2205 is available at the Taxa
Page 24 and 25: Applying for Your Home Buyers’ Wi
Page 26 and 27: sixth year following the first with
Page 28 and 29: When Designating a Beneficiary on a
Page 30 and 31: Whatever method of designation you
Page 32 and 33: Is Retirement Income Taxable?There
Page 34 and 35: You cannot contribute directly to a
Page 36 and 37: Minimum Payment, Age More Than 77Fr
Page 38 and 39: Saskatchewan RRIF (SK RRIF)The SK R
Page 40 and 41: Indexed Life AnnuityThis increasing
Page 42 and 43: Who Sells Retirement Income Options
Page 44: ® HANDS & GLOBE Design is a regist

Understanding the Basics - Servus Credit Union

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