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What is RRSP?
Register retirement Savings Plan (RRSP) is a government-regulated investment plan, designed to help salaried professionals to maximize their retirement savings while reducing the taxes, and any income that is earned on the investments.
It is an ideal solution that enables you to enjoy your retirement without having to worry about finance.
Types of RRSP
There are a number of RRSP types, but generally, they are set up by one or two associated people (usually individuals or spouses).
It set up by a single person who is both the account holder and the contributor.
It provides benefits for a single spouse and also a tax benefit for both spouses. A high-earner (spousal contributor) may contribute to a Spousal RRSP in their spouse’s name (the account holder). Since retirement income is divided evenly, each spouse can benefit from a lower marginal tax rate
It is set up by an employer for employees and is funded with payroll deductions, much like a 401(k) plan in the U.S. It is administered by an investment manager and affords contributors the advantage of immediate tax savings.
It is an option created for small business employees and employers, as well as the self-employed.
Characteristics and advantages of an RRSP:
RRSPs offer a number of benefits, mostly tax-related, to the Canadians who hold them. When making deposits into your RRSP, you are removing the contributed income from your annual taxable income and reducing the amount of taxes you pay for the year. Additionally, you are not taxed on any gains you make on investments within your RRSP account, but as we mentioned earlier, an RRSP is not actually a tax-free account, rather a tax-deferred investment vehicle.
You will have to pay taxes on any funds you withdraw from the account as part of your income tax for the year that you make the withdrawal. This can be a real issue for seniors who are living off limited income, such as their pension and RRSP withdrawals, so you will need to plan ahead to avoid being hit with a large lump sum of taxes.
Who is eligible to open an RRSP?
Any person who has filed an income tax return within Canada for income earned within the country can open a Registered Retirement Savings Plan. The account will remain open and eligible to receive contributions until December 31 of whichever year they reach 71 years of age.
Withdrawing your RRSP in cash
Withdrawing money from your RRSP as cash is very much the same as making a regular withdrawal from any account you may hold, with the exception that the money taken from the account must be reported as income on your next income tax filing, and you will have to pay taxes on the amount.
How we Help?
Our team is dedicated to helping the Canada citizens stay prepared for the life after work with financial freedom by ensuring that you are leveraging all the tools available to optimize your savings for the retirement. We offer best, expert advice for RRSP saving with world-class service every time you deal with our retirement planning specialists. We know retirement is difficult, so we make sure to help you stay prepared with the best saving methods while reducing the taxes on regular income.