5 reasons to open an RRSP
A Registered Retirement Savings Plan (RRSP) is an account, registered with the federal government, that you use to save for retirement. There are a number of benefits to saving in an RRSP.
1. Contributions are tax deductible
You claim your RRSP contribution as a deduction on your tax return. For example, if you’re in the top tax bracket, every $1,000 you contribute reduces the tax you pay by approximately $495. And if your income is lower in a year, you can carry forward the deduction for your contribution to a future year when your income may be higher. That way, your tax savings are greater when you’re in a higher tax bracket.
2. Savings grow tax free
You won’t pay any tax on investment earnings as long as they stay in your RRSP. This tax-free compounding allows your savings to grow faster.
3. You can convert your RRSP to get regular payments when you retire
You can transfer your RRSP savings tax free into a RRIF or an annuity when you retire. You’ll pay tax on the regular payments you receive each year — but if you’re in a lower tax bracket in retirement, you’ll pay less tax.
Make sure your RRSP fits into your overall financial and retirement plan. Learn more about retirement planning
4. A spousal RRSP can reduce your combined tax burden
If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. Retirement income will then be split more equally between the 2 of you — which may reduce the total amount of tax you pay. Learn more about spousal RRSPs.
5. You can borrow from your RRSP to buy your first home or pay for your education
You can take out up to $25,000 for a down payment for your first home under the Home Buyers’ Plan (HBP). You can also take out up to $20,000 to pay education costs for you or your spouse under the Lifelong Learning Plan (LLP). You won’t pay any tax on these withdrawals as long as you pay the money back within the specified time periods.
1. How much can I contribute and deduct?
Jan 23, 2015 – The RRSP limit for 2014 is $24,270. However, your 2014 RRSP deduction limit may be more than $24,270 if you did not use your entire RRSP deduction limit for the years 1991 to 2013. Your unused RRSP deduction room will be carried forward to 2014. The maximum RRSP deduction limit for the subsequent year is as follows: