WHAT IS AN RRSP?

• An RRSP – Registered Retirement Savings Plan – is a savings plan that you can contribute to over the course of your working life. When you retire, you can convert your account to a Registered Retirement Income Fund (RRIF) and withdraw an income.
• Treat your RRSP like a regular savings account by simply depositing the money and leaving it untouched until retirement. 
• Or, you have the option to invest your money in common RRSP investment vehicles, like segregated funds, mutual funds, and more.
• An RRSP is “Registered,” meaning that the CRA acknowledges the account – and your efforts at saving for your future. 
• As a result, you’re rewarded with tax benefits, which you can take advantage of as soon as you open your RRSP account. 

Here are the two major benefits:

1. Pay less income tax: Each year, the amount of money you contribute to your RRSP (up to your allowable limit) can be deducted from your taxable income for that year – or a later year, if preferred, to pay less in taxes when your income may be higher.

• You’ll receive either a bigger tax refund or a smaller tax bill each year that you contribute. 
• Eventually, you will pay tax when you withdraw the money from your RRSP account, but it will likely be at a lower tax rate because of your lower income in retirement.

2. Enjoy tax-deferred investment growth: you won’t pay taxes on your invested money – and the returns you earn inside an RRSP – until you withdraw it. 

• In the meantime, any RRSP investment gains grow tax-free, helping you reach your savings goals quicker.

• RRSP benefits are strongest when you use the funds as retirement income by converting your RRSP to a Registered Retirement Income Fund (RRIF) or an annuity. 
• You must convert it to a RRIF by the end of the calendar year in which you turn 71, but you can do it sooner if you retire earlier.

• As long as your RRSP contributions are not locked in, you can use the money whenever you want, for whatever you want. 

• Under most circumstances, withdrawing before retirement means the money you take out will be subject to taxation at your current tax rate. Therefore, this is not recommended. 

• The earlier you start contributing to an RRSP the better, thanks to compound interest and upward market trends over time. 
• If you invest money at age 26, for example, your sum has the potential to grow much larger than the same amount invested at age 36. 
• You can contribute to your RRSP up until December 31 of the year you turn 71. Those who start contributing in their 40s, 50s and even 60s can still save for retirement.

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