Final answer:
The statement about RRSP rules is incorrect; the limit is the lower of 18% of the previous year's earned income or the max limit set by CRA, which was $27,830 for 2021. The federal income tax is progressive, while taxes for Social Security are at a flat rate with an income cap. Contribution limits and rules for retirement savings vehicles like IRAs differ and are subject to annual changes.
Step-by-step explanation:
The statement that RRSP (Registered Retirement Savings Plan) rules limit a taxpayer's contributions to the higher of 18 percent of total income or a maximum amount of $25,000 is false. In reality, the annual RRSP contribution limit is the lower of 18 percent of the taxpayer's earned income from the previous year or the maximum contribution limit for the tax year, as set by the Canada Revenue Agency (CRA). For example, for the 2021 tax year, the maximum contribution limit was $27,830.
The federal income tax system is progressive, which means tax rates increase as income increases. This is contrasted with payroll taxes for Social Security and Medicare, which are set at flat rates with income caps. Social Security, for instance, in 2015 had a tax rate of 12.4% up to an income of $118,500, meaning higher income individuals would not pay additional Social Security taxes on earnings beyond this threshold.
It's essential to be aware of the specific rules that apply to retirement accounts like RRSPs, traditional IRAs, and Roth IRAs. These rules determine annual contribution limits, tax benefits, and other vital factors for financial planning. For IRAs, for example, the annual contribution limits were $5,500 ($6,500 if age 50 or older) for the years 2014 and 2015.