Canada Day 5

Best Food: The Keg and Montana's
Worst Food: Wayne Gretzky's and Tuckers

I love listening to Canadian's opinions of the US and learning about how their systems are different.

I am convinced the US needs to modify our 401k system to be similar to Canada's Registered Retirement Savings Plan.

It is very similar to our plan, but has a few basic principles that I think are lost in our plan:

While very Socialist, Canada (the Govt') does not want to pay for your retirement, so they make it very easy and risk free to start or catch up saving for your retirement.

The key differences are:
-You can contribute up to 18% of your salary (minus any pensions to a specified maximum)
-If you don't contribute your max one year don't worry, you can carry over that amount you did not contribute to next year...or over and over forever until that one great year where you can make a big investment in your retirement.
-And to make it low risk, if you ever need that money back, you can do so at any age without any penalty aside from paying current income tax rates (it is your money right?)

Canadian RRSP

This keeps people off of goverment assistance for retirement because there is literally no risk to maximizing your retirement savings.

How many Americans are gun shy about saving in a 401k because it is gone until you are 59 1/2?
"I'd contribute more, but what if we buy a house in a few years, or what if we have a baby, or what if we get sick, or get laid off?"
All of these concerns go away when you can constantly maximize your savings and still use it as an emergency fund if needed.

This is the only system I have ever heard of that guarantees you will retire with the maximum amount possible while still being able to have some funds to cover you if you are out of work or have some tough years.

Here are 2 other crazy benefits:
Special withdrawal programs

Home Buyer's Plan (HBP)
While the original purpose of RRSPs was to help Canadians save for retirement, it is possible to use RRSP funds to help purchase one's first home under what is known as the Home Buyer's Plan. Canadians can borrow, tax-free, up to $20,000 from their RRSP (and another $20,000 from a spousal RRSP) towards buying their residence. This loan has to be repaid within 15 years after two years of grace. Contrary to popular belief, this plan can be used more than once per lifetime, as long as the borrower did not own a residence in the previous five years, and has fully repaid any previous loans under this plan.


Lifelong Learning Plan (LLP)
Similarly to the Home Buyer's Plan, the Life-Long Learning Plan allows for temporary diversions of tax-free funds from an RRSP. This program allows individuals to borrow from an RRSP to go or return to post-secondary school. The user may withdraw up to $10,000 per year to a maximum of $20,000. The first repayment under the LLP will be due at the earliest of the following 2 dates:

1. 60 days after the 5th year following the 1st withdrawal

2. The 2nd year after the last year the student was enrolled in full-time studies