What Is An RRSP - Registered Retirement Savings Plan
The Canadian Registered Retirement Savings Plan (RRSP) Is Used To Help Defer Income Tax Today For Long Term Retirement Savings Tomorrow.
(RRSP) is a retirement account that’s existed since 1957 & were introduced by the government to help Canadians save for retirement. The main benefit of RRSPs is that tax on RRSP contributions is deferred until retirement.
An RRSP is what’s called a tax-advantaged account, meaning that the government created them specifically to provide tax breaks to those who invest money in RRSPs as a way to motivate them to put away money for their retirement age of 60.
Think about the RRSP as the CRA saying "you know what, don't pay us the tax this year". We don't get many handouts like this, so we should take full advantage of them especially if your employer offers RRSP matches!
In this specific case, RRSPs are what’s called tax-deferred, meaning any money you contribute will be exempt from CRA taxes the year you make the deposit, and will only be taxed years down the line when you withdraw it at 60. RRSPs are an amazing way to cut down a current-year tax bill.
Be care full and make sure you check your contribution room for the year as over contribution also comes with fees here was my mistake!
Registered Retirement Savings Plan Benifits
Let’s say you make $70,000 a year and you decide to put the maximum allowable into your RRSP $12,600. When tax day comes around, the CRA will treat you as though you earned just $57,400.
Now, tax-deferred doesn’t mean tax-free, and you will eventually have to pay taxes when you withdraw your money at retirement but by then the money should have had decades of tax free growth!
How to open an RRSP
You can open an RRSP with any financial institution & I would highly recommend taking advantage of any RRSP matches your employer offers. all that's left to do is fund the RRSP, easily accomplished by linking a savings or checking account to your investment account.
The HBP, a program through the Canada Revenue Agency (CRA), allows eligible first-time homebuyers to withdraw up to $30,000 tax-free from their RRSP to be used towards a down payment on the purchase of the home. Keep in mind this money has to be paid back to your RRSP with in a time period and details can be found here on the CRA HBP