RRSP

You should consider an RRSP if:

  • You want to supplement your retirement income so that you can maintain your lifestyle after you retire
  • You want to reduce your income tax this year
  • You want to earn tax-deferred investment income on your savings
  • You anticipate fluctuations in your income because of maternity leave, a return to school or a career change

RRSP Canada(Making withdrawals from an RRSP in years when you have little or no earned income can help equalize your income and you could pay less income tax overall)
RRSPs can also help you to buy a first home or pursue your education.

Benefits of RRSP

Investments in an RRSP have 2 big advantages over investments held outside an RRSP:

1. The contributions you make are tax-deferred.
(Most people consider it 'saving' tax, but the money is actually taxed when you eventually withdraw it.)
If you contribute to an RRSP, you won't pay tax on that money. For instance, say you make $70,000 per year. If you contribute $10,000 to an RRSP, you can deduct $10,000 from your taxable income for the year. You save the tax you would normally have had to pay on that $10,000.

2. The growth of your money is sheltered from tax while it grows.
Investments inside an RRSP grow without being taxed. That is true, whether the growth is from:

1. interest,

2. dividends, or

3. capital gains

Types of RRSP Plans

Individual RRSP
In this plan, retirement plan registered in the name of the contributor. The investments and their related tax advantages belong to the contributor.
Spousal RRSP
Plan registered in your spouse's name and to which you are contributing. As the contributor, you qualify for a tax deduction, but the RRSP investment belongs to your spouse.
The total amount contributed to your RRSP and to your spouse's RRSP should not exceed the total deduction to which you are allowed.
If your spouse withdraws from his or her RRSP in the first 3 years following the deposit, the amount withdrawn will be added to your taxable income of that same year. After that 3-year period, your spouse will be taxed on any amount withdrawn from his or her RRSP.
* Advantageous if your spouse's retirement income is expected to be lower than yours.
* Minimizes the couple's tax exposure.
* Contributions can be made until your spouse reaches 71 years of age.

Group RRSP

Regular deposit savings plan that allows employees of a company to build capital for retirement through regular salary deductions. A group RRSP is considered to be a collection of individual RRSPs, since an individual contract is registered for each participating employee. Certain conditions regarding eligibility and funds withdrawal apply.

Self-directed RRSP

An RRSP is self-directed if you establish and manage your securities portfolio yourself, or with the help of a broker.
For those who wish to invest their RRSP contributions in shares, not in equity funds.
Because of the administrative service charges, if the investments you choose are term savings or investment funds exclusively, perhaps the self-directed RRSP is not the best solution for you.
When a self-directed RRSP acquires or has non-eligible investments, you could be subject to a special 1% tax calculated at the end of each month on the market value of those non-eligible investments.


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