You’re ready to get serious about your savings, but now you have to decipher all the savings lingo. We know the struggle, and we’re here to make it that little bit easier with our guide to one of the most popular savings solutions—the RRSP.
A Registered Retirement Savings Plan (RRSP) is a government approved plan through which you save money for your retirement years. You can also use an RRSP to fund your post-secondary education or the purchase of a home. Your contributions, within limits, are tax-deductible, and the income earned is tax-sheltered. You can have any number of RRSP plans.
Once you reach retirement, you can use the money saved as retirement income. This solution enables you to spread out the taxation of your accumulated savings over your retirement years as payments are taxed as you receive them.
You can also withdraw from your RRSP without immediate taxation to purchase a home, typically your first, or fund you or your spouse or common-law partner’s post-secondary education. You are then required to repay the amount withdrawn from your RRSP without interest according to a specific schedule. It’s important to consider the loss of the compounded earnings when you consider these kinds of withdrawals. Even if you make your repayments as required, there may be a substantial reduction in the value of your RRSPs by the time you retire.
Depending on the original conditions of your RRSP, funds can be withdrawn, in whole or in part, from your plan outside of retirement or your project to buy a home or attend school. The money you withdraw in those instances is immediately taxable.