What is an RRSP?

Featuring Sean Fahy, Bcomm, Financial Planner

Duration: 1 minute, 29 seconds

A Retirement Savings Plan is the most common form of retirement savings available to Canadian taxpayers.

A taxpayer is allowed to contribute up to eighteen percent of previous years earned income to a maximum amount every year. Contributions are accumulative and may be made up to sixty days after the end of the tax year. The main benefit of an RSP is that any contributions made to the RSP are tax deductible against the investors other income.

Additionally, income, dividends and capital earned inside the RSP are non-taxable. Any withdrawals made from the RSP are taxable at the investor’s marginal tax rate. There are certain government programs such as the homebuyers plan and the lifelong learning program that allows taxpayers to take money out of their RSP to be used to buy a home and to go back to school.

Those funds that are withdrawn, must be repaid within a certain period of time, otherwise, they become taxable. Under current legislation, an RSP has to be converted into RIF, a Retirement Income Fund or Annuity by the time you turn seventy-one.

The benefit of tax decompounding inside the RSP and an immediate tax break when you make the contribution is a very powerful tool for your time and planning. It is best if you start early, even if it is a small amount of money.

Presenter: Mr. Sean Fahy, Financial Planner, Vancouver, BC

Local Practitioners: Financial Planner