The Registered Retirement Savings Plan, or RRSP, is a program created by the government to incentivize Canadians to save for their retirement. Alex explains the basics of what an RRSP is, how an RRSP works, and how you can use an RRSP most effectively.
Hi, I’m Alex McVean for McVean Wealth.
The RRSP is the most common type of investment account in Canada, and today we’ll take a deeper look at what exactly is an RRSP.
The RRSP, or Registered Retirement Savings Plan, is a program created by the Canadian government to incentivize Canadians to save for retirement.
It allows Canadians to defer taxation on their investments, as well as reduce their current taxable income.
The RRSP has 2 main benefits; the first and most well known is the ability to lower your current taxable income in a given year.
So if you had earned $50,000, and contributed $5,000 to the RRSP, your taxable income would be reduced to $45,000.
The second benefit is the deferral of tax on the gains within the account – and that’s the money that the account earns in interest.
The general concept behind the RRSP is that you defer the taxes you should pay in your prime earning years – to the years in retirement when you don’t project to have as high an income.
Since the benefits of the RRSP come in the form of tax deferral, developing the most beneficial contribution strategy is much more personalized depending on your age, circumstances and investment goals.
But one thing is for sure, if your employer is offering a group RRSP with a contribution matching program, always contribute the maximum that will be matched.
You will be increasing your income by the matched contribution, while decreasing your taxable income.
For McVean Wealth, I’m Alex McVean