Ready for RRSP season? If you haven’t opened a registered retirement savings plan (RRSP) yet, now’s a great time to start. Saving and growing your money in an RRSP will not only boost your retirement income, it can also reduce your tax bill. Here’s how it works:
What is an RRSP?
A registered retirement savings plan (RRSP) is a personal savings account that has special tax advantages. An RRSP can hold different types of investments – like stocks, bonds and mutual funds. You can contribute to your RRSP up to a certain limit every year.
How do RRSPs work?
All your RRSP contributions are tax deductible and tax-deferred. But what does that mean? Here’s the gist:
- Tax-deductible contributions mean you can reduce the amount of your taxable income. For example, let’s say you earned $50,000 last year and qualify for $10,000 in tax deductions. That means you’ll only have to pay taxes on $40,000 of your income.
- The investments growing in your RRSP are tax-deferred. This means you won’t have to pay taxes on them until you take money out of your RRSP. Ideally, you won’t have to do this until after you retire. At this point, your income will likely be in a lower tax bracket – so you’ll pay less in taxes. This means you’ll be able to keep more of your hard-earned money.
Sound good? Then don’t wait until the March 1 deadline to contribute to your RRSP. The sooner you stash your cash in an RRSP, the sooner it will start growing and working for you.
What happens if you miss the RRSP deadline?
Don’t sweat it. This just means you’ll have unused RRSP contribution room to carry forward. You can open and contribute to an RRSP at any time of the year. Just make sure you don’t exceed your contribution limit.
Get answers to your RRSP questions
You may already be contributing to an RRSP on a regular basis. Or maybe you’re just starting to think about growing your nest egg. Either way, you probably have questions on how to make the most of your RRSP. You’re in luck, because we have the answers you need.
You’ll find answers to your RRSP questions, including:
- What is an RRSP and how does it benefit me?
- When is the contribution deadline?
- How much can I contribute in 2021?
- What’s my contribution limit?
- Does it pay to invest in an RRSP year-round?
- What’s the difference between an RRSP and TFSA?
- What is a spousal RRSP?
- Should I join a group RRSP?
Plus, you’ll discover a few more things you (probably) didn’t know you could do with your RRSP.