A Registered Retirement Savings Plan (RRSP) is a personal savings plan that has special tax advantages. RRSPs can hold a variety of qualifying investments, including treasury bills, guaranteed interest products, mutual funds, segregated fund contracts, bonds and equities. Anyone who files an income tax return and has earned income can open and contribute to an RRSP. However, there are some limits on how much you can contribute to an RRSP each year.
Some benefits of investing in RRSP are that contributions are tax-deductible. You get immediate tax relief by deducting your RRSP contributions from your income each year. Effectively, your contributions are made with pre-tax dollars. Any earning in RRSP is tax-sheltered. The money you make on your RRSP investments is not taxed as long as it stays in the plan. RRSP also allows tax deferral. You’ll pay lower tax on your RRSP savings when you withdraw them from the plan once you retire. Because during your retirement, it’s possible that your fall in lower marginal tax rate. That includes both your investment earnings and your contributions.
Benefits of RRSP
Pay Less Income Tax Now
Your annual contribution can be deducted from your gross income, reducing the amount of income tax you pay that year.
Defer Tax on Investment Income
The income you earn is sheltered from tax, allowing it to grow faster. By the time you retire and withdraw funds, you will likely be in a lower tax bracket.
Borrow from Your Self1
Withdraw money to buy your first home1 or pay for your or your spouse’s education2, without penalty—providing it’s repaid within the specified time.