What is Registered Retirement Saving Plan

The Registered Retirement Savings Plan (RRSP) is a registered account designed for individual retirement savings, aimed at helping Canadians accumulate funds for retirement. It encourages saving through tax advantages and is an essential tool for retirement planning.

Key Features

The core benefits of an RRSP lie in tax-deferred growth and tax deductions. Investment earnings within the account grow tax-free, and taxes are only payable upon withdrawal. Additionally, contributions made to an RRSP can be deducted from taxable income for the year, reducing overall tax liability. The investment options are flexible, allowing funds to be used for purchasing stocks, bonds, mutual funds, and other assets.

Usage & Rules

An RRSP can be opened at banks, insurance companies, or investment firms, and individuals can also open accounts online. The annual contribution limit is 18% of the previous year’s income, up to a government-mandated maximum ($31,560 for 2024), whichever is lower. Unused contribution room can be carried forward to future years. The account must be closed by the age of 71, at which point it must be converted into a Registered Retirement Income Fund (RRIF) or other annuity products. Early withdrawals are subject to taxation and withholding tax, and they also reduce future contribution room.

Special Features

RRSPs also support spousal RRSPs, which are beneficial for couples with significant income differences. The higher-earning spouse can contribute to the account and receive tax deductions, while withdrawals are taxed in the lower-income spouse’s hands, potentially reducing the overall tax burden.

With its combination of tax benefits and flexibility, the RRSP is an ideal choice for retirement planning in Canada.