A Registered Retirement Savings Plan (RRSP) is an important component of retirement planning and offers additional functions and benefits to medical professionals and business owners.
Depending on your unique circumstances, an RRSP could prove to be a far more versatile retirement savings vehicle than you realize. The key is getting personalized, strategic advice in order to make the most of the annual RRSP contribution. If you’d like to learn more, please contact our team to arrange a consultation. In the meantime, here are some general guidelines.
1. Contribute an appropriate amount every year
While it is often impractical or even inadvisable to maximize your RRSP contribution every year, the discipline required to make a contribution before the deadline is a valuable skill to strengthen. With professional guidance and support, you can identify an appropriate amount to contribute to your RRSP every year, even taking into account priority factors such as investing in your practice or paying down debt.
2. Use your medical practice to your advantage
If you own your own medical or pharmaceutical practice, consider paying yourself a salary instead of relying on dividends. This relatively simple change will allow you to contribute more to an RRSP. There are also lucrative tax advantages to paying a salary to family members who help out at your practice, including increased RRSP contribution room.
If your family members are already formally employed by your practice, consider the possibility of creating an Employee Profit Sharing Plan. Funds paid to family members through such a plan are not subject to reasonableness rules. You could transfer a sum to a family member such as a son or daughter, who is then eligible to make a much larger RRSP contribution using that money.
If you have a spouse, setting up a spousal RRSP also offers additional income-splitting benefits.
3. Know how and when to use your RRSP
We encourage using caution when considering to borrow from your RSP for any reason. Some programs available may entail significant administration processes, tax consequences, as well as upfront and recurring fees. We recommend scrutinizing the costs versus the benefits for any type of RSP borrowing.
If you are over the age of 55, it may be time to transfer your RRSP to an Individual Pension Plan (IPP). Doing so comes with the added benefit of giving you access to banked contribution room. The IPP is a great option for some – we’ll discuss this topic in more detail in a future blog post, but in the meantime, please contact me if you’d like to know what would work best for you.
These are just some of the more useful ways an RRSP can form an integral part of your retirement planning. Additional options may be available to you, depending on your financial circumstances and corporate structure. If you have any questions about increasing the value of your annual RRSP contribution, I would be glad to help. Please contact my team at your convenience – we look forward to speaking with you!