RRSP Tip # 3: Know the Rules

1. New this RRSP season: No foreign content restrictions. The 30% cap on foreign content was eliminated in the 2005 Federal Budget.
2. Also new this season: Investment-grade gold and silver bullion coins, bars and certificates are now “qualified investments” for a RRSP.
3. A RRSP help you defer your income tax. Earnings inside it accumulate tax-free. Withdrawals are taxed as income.
4. Since contributions to a RRSP are made in pre-tax dollars, it usually results in a tax refund. Many calculators are available online (like this one from Morningstar Canada) to estimate the size of your refund.
5. A contribution to your RRSP reduces your net income, which is used for calculating, for example, the Canada Child Tax Benefit. A bigger RRSP contribution might result in other benefits than a bigger tax refund. See CRA’s Child and Family Benefits page for more information.
6. To find out how much you can contribute (for the 2005 tax year) look at your 2004 Notice of Assessment from Canada Revenue Agency. The contribution room for 2005 is 18% of your earned income in 2004 or $16,500 whichever is lower.
7. Excess contributions may attract a penalty as high as 1% per month. It is best not to over contribute.

All the information you wanted to know about RRSPs, but were afraid to ask are available at the Canada Revenue Agency website.