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Registered Retirement Savings Plan
What is a RRSP?
A RRSP isn't a specific investment. It is really just a special investment holder or account, or, if you like, piggy bank. You can hold a great variety of different investments inside the account. You can even hold many different types of investments inside the RRSP.
What makes a RRSP special is that in return for agreeing to leave the money inside the plan, you get two tax benefits - first, you can move some of your income into a RRSP without it being taxed. Second, once inside a RRSP the money grows tax-free.
- Tax-deferred contributions.
- Tax-sheltered growth.
Tax-defferred contributions
If you contribute income to a RRSP, you don't have to pay tax on that money. For instance, say you make $75,000 per year. If you contribute $5,000 to a RRSP, you can deduct $5,000 from your taxable income for that year. You save the tax you would normally have had to pay on that $5,000.
Tax-sheltered growth
Once you have money or investments inside a RRSP, they can earn profits for you without being taxed while inside a RRSP, interest, dividends, and capital gains you make on the money inside your plan aren't subject to any tax. All your profits can go back to work for you.
Other Registered Plans include:
- Registered Retirement Income Funds (RRIFs)
- Locked-In Funds (LIFs)
- Locked-In Retirement Accounts (LIRAs)
- Locked-In Retirement Savings Plans (LRSPs)
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