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The Canada Revenue Agency (CRA) has made annual announcements about the nation’s retirement programs. Namely, the Canada Pension Plan (CPP) and the Registered Retirement Savings Plan (RRSP) are updated with the start of the new year.
Here are the changes you need to know and how to use them to your advantage.
CRA increases the CPP ceiling
In 2021, the maximum retirement income under the CPP will be $ 61,600. That’s a whopping 4.9% higher than the $ 58,700 cap in 2020. CRA has also raised its employee and employer contribution rate to 5.45% from last year’s 5.25% and the self-employed rate of 10.9% from 10.5% last year.
This means that Canadians will pay more for their CPP in 2021. Of course, this has nothing to do with the ongoing economic issues. Instead, rates are decided on the basis of a formula commissioned by the CRA that takes into account the growth in wages and salaries over the past year.
CRA updates the RRSP limit
Similarly, the CRA also raised the limit on the dollar amount that Canadians can contribute to their RRSP in 2021. The dollar limit is set at $ 27,830 for 2021, compared to $ 27,230 in 2020. Although those The extra $ 500 doesn’t seem like much today, it could add a significant boost to your portfolio if invested in the right stock.
Invest your extra RRSP
I prefer high-growth companies that are likely to survive for several decades in my RRSP. The program is particularly suitable for long-term investments. With that in mind, my first choice for your expanded RRSP in 2021 is Fortis (TSX: FTS) (NYSE: FTS).
In an increasingly uncertain year, Fortis has been steady as an income that investors can rely on. The share price has been essentially stable since the beginning of the year, while the dividend yield at 3.75% is far superior to any “high interest” savings account you can find right now.
Fortis’s dividend stability is based on two key factors: the business model and the management team’s conservative approach to cash management. First, the supply of electricity is an activity unrelated to the rest of the economy. People pay their hydroelectric bills, even in a historic and pandemic economic crisis. This keeps making money flowing for Fortis.
Fortis management monitors this cash flow. In the past year, they have only paid 72% of the profits in dividends. This means that more than a quarter of the cash flow is reinvested in the business or held in reserve. This cash buffer makes Fortis much more reliable if you are looking for a safe place to park your money.
This is what makes it ideal for your reserve RRSP contribution in 2021.
Bottom line
The CRA has updated the rules on the CPP ceiling and the RRSP contribution cap for 2021. Both programs are a key part of the financial future for every Canadian. Investors should use these generous tax incentives to increase their portfolio with all-season dividend stocks like Fortis. Fortis’ 10-year dividend growth trend looks set to continue.
Are you looking for more quality actions? Here is a list.
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Silly collaborator Vishesh Raisinghani has no position in any of the titles mentioned. The Motley Fool recommends FORTIS INC.
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