Registered Retirement Savings Plan
The Canadian government created the Registered Retirement Savings Plan (RRSP) to help you save for your retirement in a tax-sheltered investment account. An RRSP can contain several types of investment tools including Guaranteed Investment Certificates (GICs), bonds, mutual funds, stocks, and income trust units.
Registered plan contributions are tax deductible and tax-sheltered until the time of withdrawal, unlike a traditional savings account. If you have contribution room, you can contribute to an RRSP until the year of your 71st birthday.
Is an RRSP right for me?
RRSPs offer numerous benefits; therefore, most working individuals who file an income tax return should consider opening one.
- Individuals can reduce their annual tax bill by contributing to an RRSP because RRSP contributions are tax-deductible.
- In a situation where a spouse earns more income than their husband/wife, they can reduce their combined tax burden by utilizing a spousal RRSP. Additionally, couples can reduce their taxes when they use income splitting during retirement to withdraw their retirement funds
- For many Canadians, the RRSP will be the main source of retirement funding
- Since money is contributed tax-deferred, it is taxable upon withdrawal. This makes the RRSP a good savings tool as it reduces the incentive to dip into your retirement savings early
- If you expect your retirement income to be less than your current working income, RRSPs are a good tool. The funds withdrawn in retirement will be taxed in a lower tax bracket.
Please take a moment to review our presentation on RRSP vs. TFSA if you are trying to decide between contributing to the TFSA over your RRSP.