5 reasons to open an RRSP
A Registered Retirement Savings Plan (RRSP) is an account, registered with the federal government, that you use to save for retirement. There are a number of benefits to saving in an RRSP.
1. Contributions are tax deductible
You claim your RRSPRRSP See Registered Retirement Savings Plan.+ read full definition contributionContribution Money that you put into a savings or investment plan.+ read full definition as a deduction on your taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition return. For example, if you’re in the top tax bracketTax bracket The rate at which you pay tax, based on your income level.+ read full definition in Ontario, every $1,000 you contribute reduces the tax you pay by approximately $535. And 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.
2. Savings grow tax free
You won’t pay any tax on investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition as long as they stay in your RRSP. This tax-freeTax-free Money that you do not pay tax on.+ read full definition compoundingCompounding A way to grow your money faster. Instead of spending the money you make investing, you reinvest it so it can grow.+ read full definition allows your savings to grow faster.
3. You can convert your RRSP to get regular payments when you retire
You can transfer your RRSP savings tax free into a RRIF or an annuity when you retire. You’ll pay tax on the regular payments you receive each year — but if you’re in a lower tax bracket in retirement, you’ll pay less tax.
Make sure your RRSP fits into your overall financial and retirement plan. Learn more about retirement planning.
4. A spousal RRSP can reduce your combined tax burden
If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. Retirement income will then be split more equally between the 2 of you — which may reduce the total amount of tax you pay. Learn more about spousal RRSPs.
5. You can borrow from your RRSP to buy your first home or pay for your education
You can take out up to $25,000 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 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.
Start saving now
The sooner you start contributing to an RRSP, the more money you’ll have when it’s time to retire. That’s because of tax-free compounding.
Use this RRSP savings calculator to figure out how much your RRSP will be worth at retirement.