RRSP

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is an account available to Canadian taxpayers who are 18 years of age or older, in which they can deposit pre-tax income, which isn’t taxed until the money is withdrawn. The money in this account can be invested freely, but there is an annual contribution limit.

What can you do with your RRSP?

The primary benefit of the RRSP is the ability for account-holders to deduct contributions from their income tax. The RRSP also allows for a broad range of investments within the account, including stocks, bonds, GICs, and mutual funds. As for using the accumulated money in the account, the Home Buyer’s Plan allows account-holders to withdraw up to $25,000 from their RRSP tax-free to put towards the down payment of their first home, although it must be paid back to the RRSP over the following 15 years.

The Lifelong Learning Plan is another option, which allows account-holders to withdraw up to $20,000 total to pay for the education of themselves or their spouse/common-law partner. This money must also be paid back to the account, within 10 years.

What happens to your RRSP once you retire?

An RRSP matures when the account-holder reaches the age of 71. At this point all funds in the account must be moved. This money can be withdrawn, transferred to a Registered Retirement Income Fund, or used to purchase an annuity.

Withdrawing the entire sum of money in a single year is not recommended, as this often puts the account holder in a higher income bracket for that year. Individuals who have RRSP deduction room available after age 71 will be able to contribute to a spousal RRSP until the end of the year in which their spouse or common-law partner turns 71.