RRSP

A Registered Retirement Savings Plan (RRSP) is a personal savings plan that is registered with the federal government with special tax benefits to help you maximize your retirement savings. There are a number of benefits to saving in an RRSP, such as:

1.    Tax-Deductible Contributions

Your annual contributions (up to your annual limit) can be deducted from your earned income, reducing the amount of income tax you pay that year. Every dollar you contribute reduces the tax you pay. If you’re in the top tax bracket, every $1,000 you contribute reduces the tax you pay by approximately $495. If you’re in a lower tax bracket, you can carry forward the deduction to a future year when your income may be higher – that way your tax savings are greater when you’re in a higher tax bracket. 

2. Tax-deferred Savings

You won’t pay any tax on investment earnings as long as they stay in your RRSP. This tax-deferred compounding allows your savings to grow faster.

3. Getting Regular Payments when you retire

When you retire, you can transfer your RRSP savings tax-free into either a RRIF or annuity. You will pay tax on the amount withdrawn each year — but if you’re in a lower tax bracket in retirement, you’ll pay less tax.

4. A Spousal RRSP

If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. You get the tax deduction for any contributions you make to a spousal RRSP.  Retirement income will then be split more equally between you and your spouse – which may reduce the total amount of tax your family pays.

5. Borrow to buy your first home or pay for your education

You can take out up to $25,000 for a down payment for your first home under the Home Buyer’s Plan (HBP) also take out up to $20,000 to pay education costs for you or your spouse under the Lifelong Learning Plan (LLP). You won’t pay any tax on these withdrawals as long as you pay the money back within the specified time periods.