Plan your Retirement and Taxes with RRSP


Registered Retirement Savings Plan or RRSP is a kind of account which helps you in savings and investing in assets. The account was introduced for the first time way back in 1957 with the aim of promoting savings by the employees for their retirement. It yields many tax benefits too, but there is a limit on making contribution and the returns on them.

Features of RRSP

  • The income which is gained out of employment is not levied to taxes till the time the money is withdrawn. Actually there is not benefit of deferred taxes because it keeps growing along with the investments made. The tax is commonly referred as contribution tax credit.
  • Income earned within the plan and after tax savings is not taxed both when it is within the plan or even after the money is withdrawn.
  • The marginal tax rate can be higher or lower than the original credit of contribution.
  • The benefits for a retired person may decrease with the increase in the income. This may be reduced by creating the income till retirement.

The benefits

  • A person in top tax bracket will enjoy a tax break of $400 on every contribution of $1,000.
  • Every $1,000 also grows in the RRSP account. You earn an interest on this savings which keeps increasing at regular intervals, though the withdrawals are taxable.
  • You have the facility of carrying forward the tax to future years and you can withdraw the money when you realize that your investment has grown in size.
  • People who are likely to get pension can also save money in this account. This will yield you double benefits at your retirement. You will be getting money through pensions and also through these savings.
  • Every year the limit of making contributions to this account keeps increasing. Hence you have every scope to enlarge your investments and save for rainy days.
  • If you are not able to deposit money up to the maximum limit of your contribution then the balance will keep getting carried forward for an indefinite period of time.
  • If you don’t attain your maximum limit then you will not be able to enjoy the benefits, hence your compound interest will get reduced in due course of time.
  • If you withdraw your savings before the maturity in times of need then the loss will be yours because your interest earned will be lesser than it could have been.
  • RRSP have a variety of options available with you. You can divert your investments in various qualifying investments like securities, bonds or any other investments.

Hence for a better retirement life you can always start an RRSP account.

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