It is a tax benefit plan approved by the government to help people save for their retired life. The funds that you contribute to your RRSP account actually gets deducted from your taxes, thereby reducing the total amount of tax you end up paying. You may later withdraw the money from this account which has been accumulated as an income to meet your retirement expenses by paying a nominal tax on every withdrawal.
How can RRSP be beneficial?
It is a tax-deferral product which helps you to manage your retirement life at ease. It lets you postpone paying taxes on your income into the future which means that, at the retirement phase when your income is presumably lower you end up paying taxes at lower rates.
What is the value proposition?
Certainly, it is. RRSP is a mechanism where you can contribute money when you have a higher tax rate and then withdraw the funds when you have a fairly low tax rate. It performs as an income splitting system.
Can money be taken out of RRSP?
You can surely take out money from your RRSP account in terms of loan viz. Home Buyers Plan or Lifelong Learning Plan. However, you would be required to repay the amount over a specific period of time. As such, unless it is highly essential to treat your RRSP as complete retirement support and you will be rewarded.
How much should be contributed to an RRSP account?
RRSP contribution is 18% of the earned income reported on the taxes for the previous financial year or tax year
- Individual RRSP – It consists of a single person who is the account holder as well as the contributor.
- Spouse RRSP – It allows the higher earner called as Spousal Contributor to an RRSP in their spouse’s name
- Group RRSP – It allows a group of employees to contribute to an RRSP account via deduction from their respective salary. Here the employees determine the size of contribution per year.
- Pooled RRSP – It is mainly beneficial for self-employed professionals and employees & employers from small sized organizations.
Registered Retirement Savings Plan or RRSP is not an investment in itself, rather it is a special type of financial plan to help Canadian citizens save for their retirement. It saves your tax paid and can hold many different types of investments together. We take an effort to guide you through this entire process and help you build a happy and peaceful retired life.