Registered Retirement Savings Plan (RRSP)
What is it?
A registered retirement savings plan (RRSP) is registered by the federal government and is designed for retirement savings – they're your retirement savings buddy! Contributions made to an RRSP can reduce the amount of income tax you pay for that year. Plus, any money you earn within your RRSP doesn’t get taxed. When you withdraw your savings in retirement, you will pay tax on them, however, you’ll likely be in a lower tax bracket and taxes won’t be as much for you. It’s like a little tax break today, setting you up for your future.
Some of the investment products you can incorporate into your RRSP portfolio include bonds, mutual funds, guaranteed investment certificates (GICs) and exchange traded funds (ETFs). There's no limit to how many RRSPs you can have, however, there is a total contribution amount which is based on your annual income. This is set annually and will be your cumulative total for all of your accounts.
What can I use it for?
Of course, as the name states, RRSPs are designed to help you save for retirement. They offer tax benefits that encourage you to set money aside for your future. They’re also beneficial when it comes to home ownership as you can use your RRSP contributions for the Home Buyers’ Plan (HBP) if you’re a first-time home buyer. In addition, RRSPs can also be used for the Lifelong Learning Plan (LLP) which finances your education or your spouse or common-law partner.
Why invest in a RRSP?
In it for the long haul
RRSPs are great for long-term retirement savings – they're designed for extended retirement planning, enabling compounding of your investments over time. Over time, your investments grow faster because you’re earning money on the money you’ve already made!
Contributions are tax-deductible, which in turn reduces your taxable income (who doesn’t love less tax?). Any gains within your RRSP are tax-deferred and withdrawals are typically taxed at a lower rate in retirement.
You have investment options when it comes to RRSPs, allowing for a wide range of products. From stocks to bonds to mutual funds and ETFs, a diversified portfolio can be yours.
How does it work?
A RRSP is a tax-advantaged savings and investment account in Canada, designed to help individuals save for retirement. You can make contributions to your RRSP account, which are tax-deductible. This means when you file your income tax return, the amount you contributed to the RRSP reduces your taxable income. This could mean a tax refund or lower taxes owed!
Once you have made contributions to your RRSP, you can then invest the funds in various financial products such as stocks, bonds, mutual funds, guaranteed investment certificates, and more. This will help you grow your savings because you’ll be earning interest, dividends, and capital gains. The best part is these earnings will grow tax-free within your RRSP until you withdraw the funds.
There are annual contribution limits based on your earned income. The Canada Revenue Agency sets these limits, and they can change year to year. Your unused contribution room (the amount of money you’re allowed to put in each year) is carried forward to the next year. This is great because it allows you to contribute more in the future when your financial situation allows.
RRSP by the numbers
The maximum contribution limit in 2023
If you contribute more than $2,000 above the limit, you’re subject to a penalty tax
Amount you can borrow, tax-free, from your RRSP to help purchase your first home with the Home Buyer’s Plan
Is this right for you?
✔ Right for you if you:
You have long-term goals. A RRSP is great for planning your retirement, as the name suggests. By reinvesting your RRSP contributions and investment earnings over many years, you can benefit from compounding, where your earnings generate even more earnings, leading to exponential growth!
Have higher income levels. If you’re in a higher income bracket, contributing to an RRSP can provide you with tax benefits since your contributions are deducted from your taxable income.
You’re comfortable with market fluctuations. If you have a higher risk tolerance or can withstand short-term market volatility (prices fluctuate significantly), an RRSP could be for you.
May not be right for you if you:
Short-term financial objectives are your goal. If you have immediate financial goals like purchasing a home or covering short-term expenses, this isn’t for you. Consider a TFSA or term deposit instead
You have lower income levels. If you’re in a lower tax bracket, tax benefits may not be as beneficial to you. Consider a TFSA instead.
You have limited contribution room. If you’ve maxed out your contribution room, or you’re nearing your limit, it’s recommended you look at other investment tools.
Products for a RRSP
You've settled on a RRSP, and it aligns perfectly with your financial objectives. It's time to choose the right products to invest your funds in and watch them flourish. Your potential earnings are directly linked to your comfort level with risk.
Discover the array of options that Conexus has to offer – there's a wealth of opportunities waiting for you!
An investment vehicle that pools money from multiple investors to buy a diversified portfolio of stocks, bonds, and other securities. Their key benefits include diversification and accessibility to a wide range of investment options, making it a convenient way for you to participate in the financial markets with reduced risk and expertise on your side from Conexus.
Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Online brokerage services are offered through Qtrade Direct Investing, a division of Credential Qtrade Securities Inc. Qtrade and Qtrade Direct Investing are trade names and/or trademarks of Aviso Wealth Inc. The information contained on this webpage was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This information is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities. The views expressed are those of the not necessarily those of Credential Asset Management Inc or Credential Securities.