Consider mutual funds and segregated fund contracts. You’ve likely heard it before: you should regularly contribute to a Registered Retirement Savings Plan (RRSP) to prepare for retirement. And perhaps you do. However, out of almost 93 per cent of Canadian tax filers who were eligible to contribute to an RRSP for the 2010 tax year, only 26 per cent actually made contributions.1o maybe you’re among the majority that did not contribute? If this is the case, keep reading
to learn why it’s so important to contribute to an RRSP, and what some of your options are.
What is an RRSP?
An RRSP is a retirement plan registered with the Canada Revenue Agency (CRA) and that you or your spouse makes monetary contributions to. These contributions, up to your personal limit, are deductible from your income, meaning that they can be used to reduce the total tax you pay in a given year. As well, any growth in an RRSP is exempt from tax while your money remains inside the plan. These are incentives the CRA uses to help ensure Canadians take an active role in preparing for their retirement.
What happens if you need to access the money in an RRSP before retirement?
An RRSP can be completely cashed out before retirement and the proceeds paid to you. You may also take partial withdrawals without terminating the plan.
How an RRSP can help you
- The deduction available on your contributions will lower your tax bill.
- It offers tax-deferred growth on investments in the plan.
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