Income-building RRSP strategies

(NC)–An effective RRSP strategy includes taking advantage of all the options available to you to maximize the power and potential of your RRSP. Here are some basic strategies you should consider:

Take full advantage of special RRSP deductions. There are two special RRSP deduction opportunities that allow you to make tax-deferred contributions in your registered plan above your allowable contribution room:

1. Retiring allowance ? If you leave a long-time employment position and receive a severance or retiring allowance, you are entitled to transfer into your RRSP an amount equal to $2,000 for each year of service before 1996, and an additional $1,500 for each year before 1989, in which you did not earn a vested pension benefit or

deferred profit sharing plan benefit.

2. Pension Adjustment Reversal ? When you leave a company pension plan or deferred profit sharing plan, you will receive a Pension Adjustment Reversal (PAR) if the total of your past Pension Adjustments exceeds the benefit you receive out of the plan. The PAR restores lost RRSP contribution room. If you have changed employers in the last year, getting professional advice on your potential PAR-room can pay off.

Choosing the right RRSP beneficiary can benefit your estate. In most provinces, you can designate a beneficiary on your RRSP ? and most people automatically designate their spouse. There are major advantages to designating an RRSP beneficiary:

? If you die without a beneficiary designation, up to 48% of your total RRSP value could be lost to taxes.

? Upon your death, in most provinces the assets immediately become the beneficiary?s property so they are available sooner than if the assets were left to your estate.

There can be instances, however, when it is more beneficial to name your estate as the beneficiary of your RRSP instead of your spouse. This allows some of the proceeds to be taxed in your hands at death. And, by naming your ?estate? as beneficiary, paying taxes on a portion of your RRSP and granting your executors the authority to make a tax-deferred rollover of the remainder of your RRSP assets to your spouse, you may be able to reduce taxes payable on other assets.

Your RRSP is an important part of your overall retirement plan and estate plan. To be sure you make the right choices that keep your RRSP on track for your benefit, and to maximize your legacy to your heirs, seek the advice of a professional financial advisor. News Canada

This column, written and published by Investors Group Financial Services Inc. (in Quebec ? a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.