RRSPs

RRSPs or Registered Retirement Savings Plans are another unique Canadian financial tool that helps you plan for your future retirement. Within an RRSP you can hold a wide variety of investments including: cash, mutual funds, stocks, bonds etc. An RRSP is registered with the Canada Revenue Agency and has two key advantages:

1) Contributions made to your RRSP are tax-deductible. This means an RRSP contribution reduces your total income used to calculate taxes owed when you complete your annual tax return.

2) Investment earnings are tax-deferred. This means your investment earnings can grow over time and are only taxed when you withdraw from the plan — usually at retirement.

While RRSPs reduce the amount of tax payable to the government, there’s a limit on how much you can contribute each year.  Your maximum contribution is generally 18 per cent of the amount that you earned from employment during the previous year, up to a specified dollar maximum set by the government.  After your first year of filing a tax return in Canada, your annual Notice of Assessment from the Canada Revenue Agency will outline your maximum RRSP contribution.

The main purpose of an RRSP is to help save for your retirement. But the government also allows you to use those funds for other important life goals such as buying a home or for the post-secondary education of you or your spouse.