A registered retirement savings plan (RRSP) is an account designed to help Canadians save for retirement. The money in an RRSP can be used to buy a whole host of investments including:
- Savings accounts
- Mutual Funds
- Individual stocks
The money you contribute to your RRSP is tax-deductible. That means that you can subtract the amount you contribute from your income and pay less in income taxes. If you made $70,000 this year and you contributed $10,000 to your RRSP, you will pay tax on only $60,000 of income. You will eventually have to pay income taxes when you withdraw your money from your RRSP, but the idea is that when you do so, you’ll be retired and your tax rate will be lower. Additionally until you withdraw from your RRSP, the growth is tax-free.
Don't forget, you can also use a certain amount of funds from your RRSP to buy a home or even fund your education.
The money you take out from your RRSP is taxable like income. Click here for more details.
So now that you know about the RRSP, let's see if it's right for you and if so, how much you should be contributing to it.