Registered Retirement Savings Plan
What is an RRSP:
A registered retirement savings plan (RRSP) is a savings account that offers you a simple way to put money away for your retirement. A key feature of an RRSP is that it is registered with the federal government.
Benefits of opening an RRSP:
Here, we will explore notable reasons to save for your retirement.
- Your investment is tax sheltered. This is a great feature because, providing that you keep your investment earnings in the plan, you won’t pay any income tax on them. This, of course, means that your savings have the potential to grow at a faster rate.
- Your contributions are tax deductible from your taxable income.
- You are able to show the contribution that you make toward your RRSP as a deduction on your annual tax return, which can add up to considerable savings for those in higher tax brackets. What’s more, you can carry forward this allowance to future years, if your income in one year is lower than usual.
- You can potentially save even more tax by taking out a spousal RRSP.
- Another great tax benefit of these plans is that your RRSP can be used in conjunction with a spousal RRSP to more equally split your retirement incomes, again leading to potential further tax savings.
- You have full control of your RRSP when you retire. This means that you can easily convert the funds invested in your RRSP to an annuity, a RRIF, or another retirement income plan. Used in conjunction with an effective Retirement Tax Optimization Plan, this can minimize the amount of income tax you pay in retirement.
- You can withdraw from your RRSP prior to retirement, without paying income tax, under certain conditions. For instance, you are permitted to withdraw up to $25,000 for a down payment on your first home, or up to $20,000 to pay for education costs (funding rules apply).
How do I use my RRSP as income when I retire?
Saving and preparing for retirement is only half the job. Deciding how, when, in what order, and at what rate to draw from the various potential income sources available to you is a far more complicated process. This is where a Retirement Tax Optimization plan (RTO plan) comes into play.
A customized and effective RTO plan can potentially find tens of thousands of dollars (or even hundreds of thousands) that you would otherwise be paying to the government. These unnecessary payments are often in the form of income tax, reduced benefits, or claw-backs. An RTO plan will integrate all of your retirement income sources and determine which to draw from, when, at what rate, and where to shelter it for later access. You remain in full control of all your assets — you just simply give less of it to the government.
There can be twenty — or more — different ways to access all of the income streams available to you. I use a proprietary system to run scenarios for all possible strategies and generate a report showing which strategy is the most efficient for your specific situation. This is a very sophisticated process but the results can be potentially life-altering for you and your family.
For more information on how to start an RRSP, or to review your retirement savings plan, contact me.