Registered Retirement Savings Plan (RRSP) is a Canadian retirement savings plan. The RRSP is a retirement savings plan that allows you to earn tax-free investment income. Contributions to an RRSP are deducted from your taxable income, so you pay less tax now.
RRSPs are primarily intended to help Canadians save for their retirement, but can also be used for other purposes, such as the purchase of a home or education. They are considered to be a long-term investment and can be held for as long as you like, allowing your money to grow tax free until it’s withdrawn.
An RRSP is so important because it allows Canadians to shelter their hard-earned money from taxes while they’re saving. That means more money left over after tax season so it can grow over time! An RRSP also allows you to defer paying taxes on any capital gains until retirement age when they will likely be taxed at a lower rate than they would be if you were paying taxes on them now. This gives investors more flexibility with their investments, allowing them more options when it comes time to draw money out of their accounts for retirement expenses such as medical costs or even long-term care costs.
Contributions made to an RRSP are tax-deductible. This means that you get a tax credit based on the amount you contribute. The more money you put into your RRSP, the bigger your tax credit will be. If you make $40,000 a year and contribute $5,000 to an RRSP, you’ll get a $5,000 tax credit from the government when filing your taxes.
Also know that, not all contributions are treated equally. The excess amount is non-deductible and added to your RRSP’s account value. The next time you make a contribution, be sure to track how much of it is deductible and how much isn’t.
The sooner you start contributing to an RRSP, the better off you’ll be in the long run. The earlier you start saving for retirement, the more time there is for compounding interest to work its magic on your investments — increasing their value over time. The longer it takes for someone to save up enough money for retirement, the more likely he or she is going to have trouble making ends meet once they stop working full-time.
Contact Arts of Finance to know more about how we can help you with RRSP.