BENEFITS of RRSPs

A Registered Retirement Savings Plan (RRSP) is one of the best ways to ensure your future financial security. Having personal savings to help supplement retirement income is becoming essential, especially as employer pension plans are becoming scarcer, and in many cases, do not offer income guarantees.

Consider some of the benefits:

• Tax Savings: By contributing to an RRSP, you reduce your taxable income by the amount of the RRSP deposit. The deposit grows and compounds in a tax sheltered environment; as a result, you only pay tax when you withdraw the money. Since many people will have a lower tax rate in retirement than they do during their working years, this strategy can result in you paying significantly less tax overall.
• Tax Refund: Since RRSP contributions reduce your taxable income, most people who make an RRSP deposit will receive a tax refund when they file their income tax with Canada Revenue Agency (CRA).
• Income Splitting: When you retire your RRSP can be changed to a Registered Retirement Income Fund (RRIF). This is a retirement income vehicle that is designed to provide you with regular income payments from your savings. If one spouse has a higher income during retirement, up to 50% of the RRIF income can be allocated to the lower income spouse. Using this strategy can help you to achieve thousands of dollars in tax savings.
• Home Buyers’ Plan: Don’t delay in saving for an RRSP because you are dreaming of home ownership. The “Home Buyers’ Plan” allows a first-time home buyer to take a tax-free withdrawal from their RRSP.
• Lifelong Learning Plan: Thinking of going to school? The Lifelong Learning Plan allows for a tax-free withdrawal from an RRSP to finance an education for yourself or your spouse/common-law partner.