A registered retirement savings plan (RRSP) is one of the best ways to ensure your financial security for the future. Having personal savings to help supplement retirement income is becoming essential, especially as employer pension plans are becoming scarcer, and in many cases, do not offer income guarantees.

Consider some of the benefits

1. Tax savings

By contributing to an RRSP, you reduce your taxable income by the amount of the RRSP deposit. The deposit grows and compounds in a tax sheltered environment; as a result, you only pay tax when you withdraw the money. Since many people will have a lower tax rate in retirement than they do during their working years, this strategy can result in you paying significantly less tax overall.

2. Tax refund

Since RRSP contributions reduce your taxable income, most people who make an RRSP deposit will receive a tax refund when they file their income tax with Canada Revenue Agency (CRA).

3. Income splitting

When you retire, your RRSP can be changed to a Registered Retirement Income Fund (RRIF). This is a retirement income vehicle that is designed to provide you with regular income payments from your savings. If one spouse has a higher income during retirement, up to 50% of the RRIF income can be allocated to the lower income spouse. Using this strategy can help you save thousands of dollars in taxes.

4. Borrow from your RRSP

Don't delay in saving for an RRSP because you are dreaming of home ownership. The Home Buyers' Plan allows a first-time homebuyer to take a tax-free withdrawal from their RRSP. Or, thinking of going to school? The Lifelong Learning Plan allows for a tax-free withdrawal from an RRSP to finance an education for yourself or your spouse/common-law partner.

5. Convert your RRSP

You can transfer your RRSP savings tax-free into a RRIF or an annuity when you retire. You'll pay tax on the regular payments you receive each year — but if you’re in a lower tax bracket in retirement, you’ll pay less tax.

Talk to your financial advisor about how RRSPs can benefit your retirement savings plan.



This information does not constitute legal, tax or other professional advice. Information is believed to be accurate, but accuracy is not guaranteed.