A significant part of any retirement plan is a Registered Retirement Savings Plan (RRSP), which is an individual or group savings plan that enables you to make tax-deductible contributions each year until retirement. The contributions are invested and the income earned is tax-free while in an RRSP, so when you retire, you will have savings available.
RRSPs offer numerous benefits:
- An RRSP plan will help you close the gap between your financial situation and retirement goals because they limit the negative impacts of inflation and taxation.
- You enjoy the immediate reward of receiving a tax deduction equal to your contribution (up to certain prescribed limits).
- Your RRSP contributions can generate income by way of interest and dividends – all tax-free until you withdraw the money.
- You can use your RRSP to help finance a home through the Federal Government’s RRSP Home Buyer’s Plan.
- You may be able to take advantage of the Federal Government's Lifelong Learning Plan and withdraw from your RRSPs for you or your partner's education.
- Most important, should government pension programs and company pension plans fail to provide enough retirement income, your RRSPs could become your primary source of income at retirement.
To qualify for an RRSP, you must:
- Be a Canadian resident.
- Possess a Social Insurance Number.
- Have "earned income" the previous year through employment or other eligible income.