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Chapter 6 Retirement

In: Business and Management

Submitted By emkay123
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CHAPTER 6 – RRSP & OTHER SAVINGS PLANS
Why a limit? * Each individual is only entitled to save a specified amount in a registered retirement savings plan * Through pension adjustment (PA), those who participate in employer sponsored plan are limited in how much they can give to RRSP * Limit is based upon earned income in prior year * RRSP contribution limit is cumulative....any amounts not used can be carried forward; therefore, all Canadian taxpayers should try to accumulate contribution room as early as possible.
How about investment income???? Is that the same????
Not quite.....why??? The income earned on investments is not “earned income” --- which can be broadly defined as income that was “actively earned”. This leads us to the review of the formula for RRSP contribution limit and the definition of “earned income”. RRSP Contribution Limit: * Start with: * Lesser of: * A) 18% of prior year’s earned income (see below) * B) 2013 money purchase limit * Less: pension adjustment for prior year (from Module #5) * Less/add: PSPA (module #5) * Add: unused RRSP contribution room (carryover of amounts earned but not contributed) * Can be made from January of THAT year to 60 days afte the beginning of next year - contriubtions made in the first 60 days of the year can be used for previous year or the year of contribution
Earned Income - Defined: * Generally, excludes income that is earned in a passive manner * Earned Income Includes: * Net Employment income (includes commission & taxable benefits, royalties, grants, profit sharing plans, less union dues) * Net income/(loss) from a business * Net rental income/(loss) * Taxable support payments received/(paid) * Disability payments from CPP * Not included in “earned income” for

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