A Registered Retirement Savings Plan (RRSP) can help you invest your retirement savings. A RRSP is an account that is used for investment assets and holding savings RRSP’s have many kinds of advantages when it comes to taxes.

Benefits of RRSPs 

  1. Tax deferred investments as long as they remain within the plan
  2. Only your registered plan you may hold cash, bonds, mutual funds, and other types of investments
  3. Tax deductible contributions

Making RRSP Contributions 

Your RRSP contributions are tax deducitbile which means you can claim them as a tax deduction when you file your income tax return and lower the tax you pay. There are limits on how much you can contribute to your own RRSPs and your spouse’s RRPs. Each year your total contribution is the lower of 18% of your earned income for the previous year or the maximum contribution amount for the current year which is $26, 010 for 2017. Keep in mind that if you are a member of a pension plan, your pension adjustment will reduce the amount you can contribute to your RRSP.

Let’s say you don’t have the money to contribute to your RRSP this year, you’re able to carry forward your contribution room indefinetely to future years. The unused contribution room will be taken into account on your RRSP Deduction Limit Statement. (You can find your RRSP Deduction Limit Statement on your most recent Notice of Assessment or on CRA’s My Account).

Contributing to your RRSPs make sense in a number of different scenarios:

1. Saving for your retirement 

One example of a scenario is, contributing to an RRSP is a structured way to actively save for your retirement. Since early withdrawal penalties are so stiff, you will be less tempted to borrow from your RRSP for purchases other than retirement like buying a home and paying for education.

2. RRSPs are tax deferred 

Another example of a scenario is, because RRSPs are tax-deffered, it makes sense to contribute to one during your peak earning years when you’re in a higher tax bracket, especially if you expect to be in a lower tax bracket come retirement.

3. Young people beginning their careers 

Another example of a scenario is, young people who are beginning their careers are likely in a lower tax bracket, so it’s a good time to open an RRSP as soon as possible because starting out early means you can take advantage of your investments compounding over time.

So are RRSPs right for me? 

One of the biggest reasons for opening an RRSP  is to take advantage of the tax benefits it provides. The funds you contribute to your RRSP will not be taxed as income until they are withdrawn. This is ideal when you retire and you’re in a lower tax bracket. Income that is earned within the RRSP accumulates tax-free. One of the other major benefit of RRSPs is that you receive tax credits for the amount you contribute up to a limit.