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Registered Retirement Savings Plan (RRSP)
What is a Registered Retirement Savings Plan?
A RRSP is a retirement savings account that can be opened at most financial institutions, and we only work with companies that allow us to sign and submit documents electronically. The government of Canada set the RRSP contribution limit for the year, which is normally the lesser of 18% of your total income or $27,830 (these numbers are subject to change). There are many types of investments you can put within your RRSP such as Stocks, Bonds, GIC’s Mutual Funds, ETFs, and more. Once you make a contribution to a RRSP you get a dollar-for-dollar deduction from your income, reducing the overall tax you will pay for that contribution year and, any money you contribute to a RRSP grows tax deferred until you decide to withdraw money from the account.
There are several types of RRSP accounts available today.
This is the type of account we would normally set up for someone who did not have a pension match through their employer. You get the benefits of a tax deduction, any money made in the account is tax deferred until you withdraw it, and you have the freedom to pick any eligible investment you would like to hold within the plan.
Each year you can also contribute to a Spousal RRSP, which gives you the benefit of being able to split the income taken from this account in retirement putting you in a lower tax bracket. The money you contribute to this plan still cants against your individual contribution limit but can be an effective way to reduce tax payable in retirement.
This type of account is set up by your employer and is normally accompanied by a contribution match of 2%-5%. How this works is if you contributed 5% of your total income to the plan your employer would match that 5% (or whatever your plan’s matching amount was) and deposit it to your plan every pay period or every month. This is a benefit to you as you are getting the employer portion of the contribution (essentially you are doubling your money even before interest is calculated) and you are paying less tax as the contribution is deducted from your paycheck and then tax is calculated. Another added benefit is the funds available within these plans typically have lower fees than their equivalent funds for an individual or spousal RRSP.