Final answer:
Interest and dividend incomes can be contributed to an RRSP up to the individual's contribution limit, which is the lesser of 18% of the previous year's earned income or the annual maximum set by the CRA. This allows for tax advantages and helps in retirement planning, ensuring an individual can live comfortably in retirement.
Step-by-step explanation:
Percentage of Interest and Dividend Incomes for RRSP Contribution
The percentage of interest and dividend incomes that can be put into a Registered Retirement Savings Plan (RRSP) in Canada is based on the individual's RRSP contribution limit. While interest and dividend incomes are taxable, you can use these earnings to contribute to your RRSP within the established limits. For the 2022 tax year, you can contribute the lesser of 18% of your earned income from the previous year or the maximum contribution limit for the year, which is set by Canada Revenue Agency (CRA). However, this is not a straightforward percentage of the interest or dividend income itself.
Investing approximately 15% of your income towards retirement can help ensure that you live with approximately 60-80 percent of your pre-retirement income during retirement. This is an example of planning for future financial stability and considering the impact of compound interest over time.
When understanding the broader economic context, if someone receives $53 of income, they may have various financial flows such as paying a certain percentage in taxes, saving a portion of their after-tax income, spending on imports, and experiencing multiplicative effects in the economy.
The U.S., similarly to other countries, taxes interest income on its nominal value without considering inflation, which can lead to a difference between the nominal and real interest rate. Thus, a person's tax liability can be disconnected from their real gains in purchasing power, particularly in high-inflation environments.
Ultimately, contributing interest and dividend incomes to an RRSP can provide tax advantages up to your contribution limit. This allows for a profitable way to manage income taxes, invest in your future, and leverage the benefits of compound growth over time.