A registered retirement savings plan (RRSP) is a personal savings account that has special tax advantages. RRSPs can hold a variety of qualifying investments, including treasury bills, guaranteed investment products (GIC/GID), mutual funds, segregated fund contracts, bonds and equities. As well, some types of investment contracts, such as registered guaranteed investment fund contracts, are themselves RRSPs.
An RRSP is such a powerful savings vehicle because your contributions are tax deductible, and the taxes on.
Any investment growth are deferred until you take your money out. Tax-deductible contributions mean you’ll have more of your income available for your current needs, even while you’re saving for the future. And tax- deferred investment growth (interest, dividends, capital gains) keeps more of your money working for you.
When you withdraw money from your RRSP, it is taxed at your marginal tax rate at the time you take it out. But if you’re like most people, you’ll be retired when you start to take withdrawals, so your tax rate will differ from when you were employed, but the withdrawal of RRSP or conversion to RRIF must still be carefully managed to plan to pay the least amount of income tax possible.
You should consider an RRSP if:
- You want to save money for retirement and be able to deduct your contributions from this year’s income
- You want to take advantage of the Home Buyers Plan (HBP)
- You want to take advantage of the Life Long Learning Plan (LLLP)
- You’re looking to reinvest your tax savings
- You want to use your tax savings to pay down non-tax-deductible debt, like your mortgage