Want to Save for Retirement? RRSP is Your Solution

There is some registered plan offered by the government of Canada for Canadian citizens to enhance their savings levels through tax benefits and other advantages. The registered accounts work with the same aim but with different terms and conditions. Registered Retirement Saving Plan (RRSP) and Tax-Free Saving Plan (TFSA) both come under that category and help you earn through your savings as much as possible without compromising savings for your future. Before making any investment decision it is necessary to have a detailed understanding of the terms and conditions along with the pros and cons of each saving plan.  

Registered Retirement Saving Plan (RRSP)

If you are looking for a plan that helps you save keeping in mind your life after retirement then a Registered Retirement Saving Plan (RRSP) is the one you should consider. This is a plan launched by the Canadian government in 1957 motivating Canadian citizens to save to secure their future. There are tax benefits offered by the account i.e., the contribution made in this account is tax-free. Depending upon the amount you deposited in a year, you can also reduce the tax you have to pay for that year. You can also earn interest, dividends, and capital gain using the saved amount. The earning made from the savings will also be tax-deferred.  

What You Must Know About RRSP?

  • There is a maximum yearly limit to the amount you can deposit in RRSP i.e., 18% of your annual income. The maximum savings limit is say $28,125 then the maximum amount you can contribute will be either $28,125 (annual limit) or 18% of your annual income, whichever is less.
  • The amount you deposit in your RRSP will reduce the taxable amount, resulting in tax defer.
  • The amount you earn from your RRSP account will be tax–deferred.
  • The savings limit keeps on changing from year to year.
  • In case because of some reason, you save less than the maximum allowed amount then the remaining amount will be carried forward the following year.
  • The withdrawals made in RRSP are taxable.
  • The account will mature automatically when account holders reach 71 years of age.
  • The tax benefit will be given according to the contribution made before the closing of the respective financial year.
  • You can maximize your contribution by opting for an RRSP loan.
  • You can use RRSP funds in the way you desire.
  • You can invest in your spouse’s RRSP account and get tax-benefit on contributions made.
  • The funds saved in RRSP can be used to purchase your first property or enroll back in school.

There is no restriction on withdrawal from the RRSP account but you have to pay taxes depending upon the withdrawal amount and your income. If you make a withdrawal before maturity then it can benefit if you are planning of taking any type of RRSP loan. If you repay the withdrawn amount from RRSP timely then it is possible that your RRSP loan can become tax-free. You can consult financial advisors who can give you different investment options and you can choose what suits you and your budget the most.  

Key Points to Consider

RRSP is open to saving a sufficient amount till you are earning so that you can maintain your lifestyle after you retire. It helps you to secure your future and be financially independent even when you don’t have any regular income.

Therefore, it is important that you plan ahead and list out the things for which and how much money you will need like:

  • For health issues or medical bills.
  • For day-to-day expenses.
  • If you want to travel or go for long vacations.
  • If you want to take up any new hobby like photography or cooking or anything else.
  • Debt if you have any.

If you go with proper financial planning then RRSP can help you in saving enough to make your retirement easy as well as comfortable for you and your family. 

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