This post is a sponsored collaboration with Questrade, but all opinions are my own.
RRSPs are a powerful way to save for your retirement, but there are plenty of myths out there about how to use them, how they work, and what you need to do to use them.
Those myths are hard to debunk, because no one really wants to put up their hand and admit they don’t know how RRSPs work—but there’s no reason to feel that way, because how would you even know? No one is born understanding RRSPs.
That’s why today, we’re going to be busting some of the most common RRSP myths out there, so you can rock this RRSP season with full information, and go into the new year ready to make the most of this retirement account.
RRSP Myth #1: I can only contribute to my RRSP during RRSP season.
Right now, all eyes are on the RRSP because March 2nd is the last day to have your RRSP contributions be eligible to include on your 2019 tax return. However, contributions to your RRSP provide you the exact same tax benefits year-round—so if contributing now makes sense to you, it probably does next month too. The only thing that changes is the year in which you can count them against your taxes.
Rushing to contribute ahead of the deadline might make sense if you have a complicated tax situation, or if you’re working with a professional to optimize your taxes, but there’s no need to hastily contribute before the deadline. Instead, you could use this time to think about how you want to save a reasonable amount monthly in your RRSP over the next year, to set yourself up well for your 2020 taxes.
RRSP Myth #2: I can only open an RRSP at my bank.
I personally believed this for a long time, and it was such a hassle. Go into the bank, make an appointment, go back to the bank, and have to watch someone across a desk fill in forms for you. Not a great use of time!
Luckily, this myth is 100% false. You can open an RRSP online with online investment services like Questrade, and have it all done in just a few minutes. You’ll need the same personal information you’d need to open an RRSP anywhere else, but it’s the exact same account and the exact same tax benefits you’d get at a bank.
RRSP Myth #3: I can only open an RRSP through my job.
If you’ve always worked at jobs that offer RRSPs and RRSP matching programs (#blessed) you might think that RRSPs are something that you can only get through your workplace. However, this is entirely false.
You can open an RRSP on your own at any financial institution, including online ones as we covered in myth #2. It’s not hard, and if you opt for something like Questwealth Portfolios that charges just 0.25% in management fees (plus the cost of the ETFs) you’ll get just as easy an experience as handing your money to your company RRSP, for a fraction of the cost.
What’s Questwealth Portfolios? Questrade may be known as Canada’s best online brokerage, as crowned by MoneySense and Ratehub, but they have options for everyone, even if you’re not yet ready to buy and sell stocks and ETFs yourself. With Questwealth Portfolios, you’ll receive a pre-built, diversified portfolio of ETFs that is based on your goals and risk profile.
Plus, you can get your first $10,000 managed for free with Questwealth Portfolios by signing up through this link! (It’s an affiliate link, so I’ll earn a small commission at no cost to you.)
RRSP Myth #4: I will have to pay hefty fees and taxes if I transfer my RRSP.
Because you can’t withdraw money from your RRSP without paying taxes on it, a lot of people think that you also can’t transfer an RRSP to a new financial institution without paying taxes on it. False!
When you transfer an RRSP to another RRSP at a different company, it doesn’t count as withdrawing the money. To make sure that happens, sign up for an account with your chosen company and have them initiate the transfer on your behalf. They’ve got the systems in place to make sure it happens properly, so you don’t have to withdraw all your money and recontribute it later, which would trigger taxes.
However, part of this is sometimes true: Many financial companies will charge you a fee to move your RRSP elsewhere. Luckily, Questrade will cover up to $150 in fees incurred while moving your RRSP to them, and they have no minimum account balance required to be eligible for covering those fees. That’s a next-level offer, and means it really is free to move your RRSP to them. Sweet.
RRSP Myth #5: The only reason to save in an RRSP is the tax break.
Especially at this time of year, it’s fair that tax breaks are top of mind, but it’s a myth that the tax break is the only reason to invest in your RRSP. Note the key word there: invest.
Your RRSP is a powerful investment account, because any growth that happens in the account isn’t taxed until you withdraw it. If you invested outside of an RRSP in a taxable account, you’d be on the hook for capital gains taxes in the account, whereas your investments can grow tax-free in your RRSP for as long as they’re in there.
When you combine that tax-free growth with low-fee investments, it means you’re keeping more of your investment returns and will be better able to fund your retirement. (Especially if you also invest the tax refunds you’re getting for your contributions!)
RRSP Myth #6: I can only invest in mutual funds in my RRSP.
Let’s talk about fees.
Canadians hold 1.63 trillion dollars in mutual funds, and 70% of the money Canadians have in mutual funds gets charged an average fee of 2% or more. That may not seem like a lot, but over a lifetime it’s a lot of money. Questrade put together a calculator to show you just how much the high fees on mutual funds can eat into your returns over time—in my example, I’d end up over $200,000 richer over 30 years just by paying lower fees with Questwealth Portfolios.
Luckily, you can invest in plenty of options other than mutual funds in your RRSP—even if you’re not an expert. Options like Questwealth Portfolios are built using ETFs, which give you the benefit of mutual funds (a bundle of different investments, instead of just a single stock or bond) without the high fees.
And since fees are one of the only things that are entirely within your control when it comes to investing, it makes sense to make sure you’re avoiding them—which you can definitely do within your RRSP.