Registered Retirement Savings Plan
The benefits of opening an RRSP
A Registered Retirement Savings Plan (abbreviated to an RRSP) is a savings account which offers you a simple way to put money away for your retirement. A key feature of an RRSP is the fact that it is registered with the federal government. Here, we will explore five notable reasons to save for your retirement using an RRSP account.
- Your invested dollars grow tax free within the RRSP. Providing that you keep your investment within the plan, you won’t pay any tax on them. Because there are no annual taxes, your investments can grow more quickly.
- Your contributions are tax deductible therefore you are able to show the contribution that you make towards your RRSP as a deduction on your annual tax return. If you are earning a significant income the tax savings associated with making RRSP contributions can be significant. You can also carry forward unused RRSP contribution room to future years, if your income in one year is lower than usual. A qualified advisor can help you with this.
- You can potentially be even more tax efficient by using a spousal RRSP. You can combine your tax-free savings within a spousal RRSP to split your retirement income between you and your spouse leading to potential further tax savings.
- You can transfer your RRSP when you retire to an annuity or a RRIF at the time of your retirement to receive regular, periodic payments.You should note that you will have to pay tax on this income annually.
- You won’t pay tax on withdrawals from your RRSP in special situations. For example, you are allowed to withdraw up to $25,000 for a down payment on your first home, or up to $20,000 to pay for education costs (funding rules apply). Speak with an advisor to find out if you qualify for either of these options.