How to use your RRSP for more than just retirement

Most Canadians know that a Registered Retirement Savings Plan (RRSP) is an excellent tool for retirement planning and reducing income tax. But did you know there are other practical ways to use your RRSP? We're going to highlight five strategies to help you maximize your savings. Whether it's buying your first home or funding your education, discover how your RRSP can do more than prepare you for retirement. 

1. Buy your first home with the Home Buyers’ Plan (HBP)

Are you a first-time home buyer? Your RRSP can help you achieve your dream of owning a home through the Home Buyers’ Plan  (HBP). 

You (and your spouse if you have one) can borrow up to $60,000 from your RRSP to buy your first home (So a total of $120,000 for a couple). These withdrawals are tax-free, provided you repay the money to your RRSP over a 15-year period.*

Given the challenges of rising home prices in Canada, the HBP offers a helpful way to make homeownership more attainable.

* The government has recently announced some additional relief for Home Buyers' Plan (HBP) participants. Normally, the RRSP repayment period starts in the second year after you make your first HBP withdrawal. However, temporary repayment relief is now available for those making their first withdrawal between January 1, 2022, and December 31, 2025. For these participants, the start of the 15-year repayment period can be deferred by an additional three years. This means the repayment period would begin in the fifth year following the initial withdrawal. For the most up-to-date and detailed information on these changes, visit the Government of Canada website.

2. Fund your education with the Lifelong Learning Plan (LLP)

Considering going back to school? Or helping your spouse upgrade their skills? The Lifelong Learning Plan (LLP) allows you to withdraw up to $20,000 tax-free from your RRSP for eligible education programs.

• You can withdraw up to $10,000 annually, with a lifetime maximum of $20,000.
• The program covers full-time education and part-time programs if you or your partner has a disability.
• Repayments are spread over 10 years, with one-tenth of the total required each year.

For example, if you withdraw $10,000, you'd repay $1,000 annually. The LLP  provides a practical way to fund education that can improve earning potential or career growth, while offering flexibility for those with disabilities.

3. Reduce tax deductions at source

Instead of waiting for your tax refund, consider contributing to your RRSP through payroll deductions in a group or workplace plan. That way, your withholdings for income tax can be reduced. Alternatively, if you don't have a workplace plan, you can file a T1213 Request to Reduce Tax Deductions at Source with the CRA. This allows you to adjust your tax deductions and keep more money in your pocket throughout the year. Reducing tax deductions at the source is a simple way to maximize the benefits of your RRSP and improve your cash flow.

4. Make in-kind contributions to your RRSP

Most people contribute to their RRSPs with cash. But you can also transfer investments, like stocks or mutual funds, directly into your RRSP. This is called an in-kind contribution. Here's what you need to know:

If your investments have increased in value:

• You'll need to pay capital gains tax since the CRA considers it a "deemed disposition" at fair market value.
• Keep in mind, some or all of the capital gains tax can be offset by your RRSP contributions. 

If your investments have decreased in value: 

• You can't claim a capital loss when transferring assets into an RRSP.
• This can be a significant drawback. Explore other options if your investments are in a loss position.

Other considerations:

• Not all RRSP allow in-kind contributions–check your plan's rules.
• An advisor can help you determine if this strategy works for your financial goals.

Making in-kind contributions is one of many ways to get the most from your RRSP. Let's explore another strategy: leveraging the RRSP over-contribution limit.

5. Use the RRSP over-contribution limit

You can take advantage of a one-time $2,000 over-contribution limit to grow your savings tax-deferred. However, there are rules you need to be aware of:

• The $2,000 must eventually be claimed as part of your contribution limit. Otherwise, you could face double taxation when you withdraw the funds.
• Exceeding the $2,000 limit triggers a 1% penalty per month on the excess amount until it's withdrawn.

This strategy may help you maximize your RRSP's potential, but it's important to carefully monitor your contributions to avoid exceeding the allowed buffer. It's important to understand the potential consequences.

Are your RRSP savings enough? Need help getting started?

To help ensure you're making the most of your RRSP, connect with a Prospr advisor.

No matter where you are in your retirement planning, we're here to help you make the most of your RRSP and help set you up for a secure financial future. 

This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation. The values and rates presented are not guaranteed.