RRSP Help - The Basics
WHAT IS AN RRSP?
A Registered Retirement Savings Plan (RRSP) is a personal savings plan registered with the Canadian federal government allowing you to save for the future on a tax-sheltered basis. An RRSP is an investment portfolio - your designated retirement savings. It can contain a variety of investments including: RRSP savings deposits, treasury bills, guaranteed investment certificates (GICs), mutual funds, bonds, and even equities. What makes an RRSP special is that your contributions to it are tax deductible and your portfolio grows tax sheltered. If you are under 70 years of age and earn income, we encourage you to take advantage of the benefits an RRSP can offer.
Who Can Contribute to an RRSP?
Any Canadian citizen aged 69 or less with eligible income can contribute to an RRSP.
Actually any individual who works, files a Canadian income tax return, and looks forward to secure retirement should consider having an RRSP.
There are many benefits to RRSP Contribution, such as:
- People who earn income through their employment or self-employment, can reduce their annual tax bill while saving for their future through an RRSP.
- For people who have a company pension plan, RRSPs add extra comfort that their retirement needs are met; for those that don't have company pension plans, RRSPs may be the foundation for funding their retirement.
- Married couples where one spouse earns more income than the other can reduce their combined tax burden through a spousal RRSP. At retirement, an income-splitting strategy can be applied to reduce overall tax when the funds are withdrawn.
- If you are planning on purchasing your first home or are interested in continuing your education, you can contribute to your RRSP, then use these funds as a source of financing.
- If you anticipate fluctuations in your income because of maternity leave, career change or employment interruptions, the funds in an RRSP are always available to you.
What are the benefits of RRSPs?
While designed specifically as a retirement vehicle, an RRSP has benefits throughout your lifetime.
- By contributing to an RRSP throughout your working career, you'll realize immediate tax benefits at a time when your income is generally highest. The total amount of your annual contribution can be deducted from your gross income at tax time, reducing the amount you pay in income tax that year.
- The income earned in your RRSP is not taxed until it is withdrawn. While your investments sit in your RRSP, their growth is tax sheltered and so the total value may grow more quickly.
- By the time you begin to withdraw the funds at retirement, you will probably be in a lower tax bracket than during your earning years. Funds withdrawn at that time will benefit from this lower tax rate.
- Special features of RRSPs allow you to do further tax planning or use your RRSP to fund specific life events.