Reasons Individuals Often Consider a RRSP

Written by

staterafp

Published on

February 22, 2024

Opening a Registered Retirement Savings Plan (RRSP) can be beneficial for many individuals. While we would always recommend talking to Statera Financial Planners first, to ensure that this investment account is best suited for your current financial goals and income position, there are a few basic reasons they are highly considered:

1. Contributions are tax deductible

You claim your RRSP contribution as a deduction on your tax return. Or, if your income is lower in a year, you can carry forward the deduction for your contribution to a future year when your income may be higher. That way, your tax savings are greater when you’re in a higher tax bracket and have a greater impact on the tax saved.

2. Savings accumulate tax free

You won’t pay any tax on investment earnings as long as they stay in your RRSP. This tax-free compounding allows your savings to grow faster while you save for retirement.

3. You can convert your RRSP to get regular payments when you retire

You can transfer your RRSP savings tax free into a Registered Retirement Income Fund (RRIF) or an annuity when you retire. You’ll pay tax on the regular payments you receive each year afterwards— but if you’re in a lower tax bracket in retirement than when you initially claimed the contributions, your tax position will still be favourable overall.

4. A spousal RRSP can reduce your combined tax burden

If you earn more money than your spouse or common law partner, you can help build their savings up by contributing to a spousal RRSP, and still claim the deduction for yourself. Retirement income may then be split more equally between the two of you — which could reduce the total amount of tax you pay.

5. You can borrow from your RRSP to buy your first home or pay for your education

You can take borrow up to $35,000 for a down payment for your first home under the Home Buyers’ Plan (HBP).
You can also take out up to $20,000 to pay education costs for you or your spouse/common law partner under the Lifelong Learning Plan (LLP).

You won’t pay any tax on these withdrawals as long as you pay the money back within the specified time periods, be sure to talk to Statera Financial Planners to fully understand how these programs work.