If you have looked into any form of retirement plans, you more than likely have come across RRSP offerings before. RRSP stands for Registered Retirement Savings Plan and is a special retirement account that you can register with the federal government. With this type of registered account, you can easily save for your retirement and access your funds when it comes time to retire.
Having an RRSP comes with certain advantages such as:
You enjoy tax-deductible contributions
Your contributions to an RRSP can be claimed as a deduction on your tax return. These tax-deductive contributions work for people of all tax brackets. For instance, if you fall into Ontario’s top tax bracket, each $1000 you put in your RRSP account will lower your tax by about $535. However, if you fall in the lower tax bracket, you are allowed to transfer the deduction to a future date when you may be earning more. With this, you can enjoy better tax savings with proper tax planning.
You can grow your savings without paying tax
Normally, you need to pay some tax on your investment earnings. However, if you have an RRSP contribution, you don’t have to pay tax on anything you earn from your investment. As a result of this, your savings will grow without a dip caused by paying tax on your earnings.
It reduces your combined tax burden through a spousal RRSP
If your income is significantly higher than that of your spouse, you should consider opening a spousal RRSP to save without tax. With the aid of a spousal RRSP, you can divide your retirement income into two equal parts. As such, the total payable tax on the money will be significantly reduced.
You can convert your RRSP into regular payments after retirement
Once you have retired, this exceptional plan allows you to convert your RRSP savings into an annuity or RRIF. It is worthwhile to note that this conversion doesn’t require any tax. Afterward, you will be getting regular payments during your retirement while paying only the regular tax on the amount you get annually. Furthermore, you can pay less tax if you belong to a lower tax bracket.
You can borrow money from it for education or for your first-home purchase
Are you planning to return to school? Would you like to purchase your first home? If the answer is yes, an RRSP can make life easier for you. Using the Home Buyers’ Plan (HBP), you are allowed to withdraw as much as $25,000 to use as a down payment for buying your first home. Also, you can take advantage of the Lifelong Learning Plan (LLP) to get as much as $20,000 to pay for your education or your spouse’s education. If you return the money within the agreed timeframe, the withdrawals will not require any tax.
With these benefits of an RRSP, you will agree that it is a plan that everyone should consider. If you have any doubt about this plan, don’t hesitate to get in touch with a financial advisor. Apart from explaining the plan, a seasoned financial advisor can help you set up your RRSP account as well as provide direction on where to invest your savings.