Whether you're having a baby, taking a year off to get an MBA or planning a subbatical, knowing you can delay claiming your deduction without losing it means you can plan to make those RRSP contributions work even harder in terms of the deductions you will eventually receive.
Myth 2: You have to be over 19 to contribute to an RRSP.
This misunderstanding comes about because people under the age of 19 are not allowed to make an over contribution to their RRSP's. However, anyone living in Canada who has earned income and who files a tax return, regardless of age, has RRSP contribution room. That includes kids with paper routes, lemonade sellers, babysitters, and children who have promising careers.
Even if there is little point in a child claiming the RRSP deduction because she owes little or no tax, the benefits of contributiing to a registered plan still make the exercise worth while.
First, there is the magic of a compounding return. A 10 year old's RRSP contribution of $500 compounding at an average return of 9%, will grow to more than $57,000 by age 65. If your child contributes $500 every year until she is 19 the final payout jumps to more than $500,000. An investment of $7000 grows more than 7000%. A good deal by any standard, right?
The second benefit is that a child's RRSP tax deduction can be carried forward indefinitely, so when she does start working full time, she will have deductions she can use to offset the tax on her income.
Roll that saved money into an RRSP, too, and compound it for 50 years and . . . well, you get the idea.
