Saving can be really difficult, and laden with temptations, but having a Registered Retirement Savings Plan (RRSP) is a sure-fire way to achieve your financial goals with ease. This is a method that keeps some part of your income in a private account, against retirement. Not sold? Here are five amazing benefits of opening an RRSP.
1. Dip for essential needs
RRSP makes adequate provision for your needs through plans that enable you to withdraw the needed capital as long as you pay it back in the stipulated time frame. One of these options is the Home Buyers’ plan that allows you to take as much as $25,000 from your savings plan, in order to make down payment for your intended home. There is also the Lifelong Learning Plan that allows you to take up to $20,000 for costs incurred during an academic pursuit by you or your spouse. This way, saving with RRSP does not hinder your needs, but rather supports you in achieving them.
2. Spousal consideration
You may have noticed the provision for your spouse in the first point above, but it gets even better! If your net income is a higher amount than what your spouse makes, you can support their retirement savings by creating a spousal RRSP. As opposed to bearing the weight of higher tax deduction, the retirement funds that you contribute will become split across the both of you and that automatically reduces your tax payment on each income. A spousal RRSP emphasizes the ‘better half’ reference to being a couple.
3. Growing savings
With RRSP, your savings are no longer money you simply keep for rainy days. It grows with tax-free investments that are promoted by the government, so your savings actually grows faster with earnings in your RRSP.
4. Post-retirement income
The whole point of an RRSP is saving towards retirement but instead of getting your money in divisible huge chunks, you can switch the plan to a Registered Retirement Income Fund (RRIF) after retirement. This way you get monthly payment, that is taxed based on your income bracket. So you still have a secured source of income that can aid your life plans.
5. Tax eduction
Saving only gets better when it balances your income. With your RRSP contributions, you get a deduction on the amount you pay for tax since the federal government calculates your savings split from your income before deriving your tax payment on that salary. The higher you earn, the lower your designated tax payment.
Creating an RRSP early is advisable because it just means a higher total of savings by the time you’ve hit retirement age –and you have the added option of progressing with an RRIF!