In general, RRSP is a good idea to grow retirement money in a tax- advantageous way. Let’s get more insights on the Registered Retirement Savings Plan in Canada.
What is RRSP Canada?
RRSP is a retirement savings tool for Canadians that was established in 1957 under the Income Tax Act of Canada. This investment account is registered with the federal government of Canada and is supervised by the Canadian Revenue Agency (CRA).
Is RRSP a good idea for Canadians?
An RRSP is a good idea:
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If you are looking to grow your money in a tax-advantageous retirement tool. The income returns, interest, dividends and capital gains are not taxed within RRSP until it’s withdrawn. The contribution limit of TFSA is only $6,000 per annum whereas it goes upto $27,830 per annum in a RRSP (depending on your earned income).
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If you are looking to reduce your tax bill, then you can contribute into RRSP, as the contributions made can be deducted from the assessable income. For example, if your marginal tax rate is 33%, then for every $1,000 you put into RRSP, you can save $330. Imagine you earn $200,000, you can contribute up to $29,210 which will save upto $9,639 in your taxes. It is notable that TFSA does not offer tax deductions for contributions made.
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If you are planning to buy your first new home in the near future, RRSP is a great tool. You can drawdown upto $35,000 for this purpose, without being taxed
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If you are aiming high for a quality education, you can draw down upto $20,000 from your RRSP, whiteout coming under the tax radar.
RRSP for Canadians
Thus, saving money is always a good habit, unless it hampers your current lifestyle. The sooner you start a RRSP, the better your retirement lifestyle is expected to be.
Please note we have listed the general suitability and advantages of RRSP. However, it is important that you consult your tax advisor or financial planner, if you are looking to save up for a significant life event.