What is a 'Registered Retirement Savings Plan (RRSP)'

Making RRSP withdrawals before you retire

2 ways to borrow money from your RRSP tax free.

Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan. What is a 'Registered Retirement Savings Plan (RRSP)' A Registered Retirement Savings Plan (RRSP) is a retirement savings and investing vehicle for employees and the self-employed in Canada. Pre-tax .

How much you can contribute

8. I maxed out my RRSP contributions. Can I add money to my RRSP in January and February, and count it as contributions? Yes, contributions made in the first two months of the year can be declared for either tax year.

The main benefits of client-name accounts is that they do not generally incur annual fees or "exit fees", the investment is registered with the trustee in the client's name instead of the "dealer's" name and therefore, client-name investments are not subject to bankruptcy issues if the dealer goes bankrupt. Another benefit is that a Dealer Statement generated quarterly by the Mutual Fund Dealer; and Exempt Market Dealer contain all investment activity buy, sell, switch through that dealer for ease of tracking investments.

Generally, client-held accounts are for mutual funds and exempt products only; therefore, if an investor holds stocks and bonds along with mutual funds or exempt products, a Nominee or Intermediary account is most beneficial for ease of tracking all types of investments in one place. Nominee accounts are so named because individuals with this type of account nominate a nominee, usually one of Canada's five major banks or a major investment dealer, to hold a number of different investments in a single account.

For example, if an individual buys investment 1 with one company and investment 2 with another, both investments are held in a single RRSP account with the nominee, a chartered bank. The main benefit of a nominee account is the ability to keep track of all RRSP investments within a single account.

The main detriment is that nominee accounts often incur annual fees. It is essentially a trading account at a brokerage that has tax-sheltered status. The holder of a self-directed RRSP instructs the brokerage to buy and sell securities on their behalf as with any brokerage account.

The reason that it is described as "self-directed" is that the holder of this kind of RRSP directs all the investment decisions themselves, and does not normally have the service of an investment advisor. Intermediary accounts are essentially identical in function to nominee accounts. The reason investors would have an intermediary account instead of a nominee account has to do with the investment advisor they deal with, as advisors not aligned with a major bank or investment dealer may not have the logistical ability to offer nominee accounts to their clients.

As a result, the advisor will approach an intermediary company which is able to offer the investor identical benefits as those offered by a nominee account. The main benefits and detriments of intermediary accounts are identical as those offered by nominee accounts. It is possible to have an RRSP roll over to an adult dependent survivor, child or grandchild, as it would to a spouse. The new registered asset could result in provincial benefits being cut off. This possibility affects the overall estate plan and often the distribution of the estate.

A Lifetime Benefit Trust LBT is a new option that may be valuable for leaving a personal trust in a will for a special needs, financially dependent child, grandchild or spouse. Originally, RRSPs were limited to mostly domestic content, that is, Canadian based investments such as GICs, bonds and shares of Canadian corporations, and mutual funds holding such assets. However, by then, mutual fund managers found a way to get around this limitation and offer unitholders exposure to foreign markets without using up any of the foreign content quota.

They typically did this by holding all fund assets in Canadian treasury bills or similar cash equivalent assets, and using foreign equity index futures or forward contracts with a similar notional value to obtain equivalent market exposure. In , the law was changed to remove foreign content limit altogether.

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This section needs additional citations for verification. The idea is to equalize the incomes of the spouses as much as possible to reduce your tax bill. Still, spousal RRSPs are less popular than they used to be. The catch is you have to repay the full amount within 15 years. Once again, the money has to be repaid. That penalty will eventually be refunded if your income is low enough though see below.

Is that a good time to withdraw funds from my RRSP? When your income is low, you pay less tax on your RRSP withdrawals, so it can be an excellent time to shovel money out—as long as you trust yourself to put it right into a TFSA and continue saving.

It depends on how luxurious a retirement you want. Then multiply that amount by Most retirees can live comfortably on half their pre-retirement income. The chart above offers some sample numbers, based on a few realistic assumptions. Any extra money you do earn should go towards paying down debts. By your early 30s, the mortgage, cars and kids are weighing you down. By then, your mortgage should be paid off and the kids finished university.

Confused by another set of letters? The difference is that with RRSPs, you get a tax break when you contribute. For TFSAs, the process reverses. So which is better? It all depends on how much money you make. The reason is that people with lower incomes can make more in retirement than they do when they are working, due to the government benefits you get at age What is the most tax-efficient way to get money out of RRSPs?

If you thought saving up for your retirement was tricky, wait until you quit working and start spending some of that money. The trouble often starts when people turn One way to avoid this problem is to look at ways to keep your income from ballooning when you hit You can also try a few tax-saving manoeuvres. You can defer those deductions to later years when your income is higher and you really need them, says Tim Cestnick, author of Tax Secrets for Canadians. Another option is to buy flow-through shares issued by certain mining and oil exploration companies.

The tax credit you get from investing in these firms can be high enough to offset the taxes you have to pay on RRSP withdrawals. For more from the MoneySense Extra! Should you borrow money to invest in your RRSP? We've sent an email with instructions to create a new password.

Your existing password has not been changed. RRSP information may be found here. RRSPs have two main tax advantages: Contributors may deduct contributions against their income. And the growth of RRSP investments is tax sheltered. Unlike with non-RRSP investments, returns are exempt from any capital-gains tax, dividend tax or income tax.

This means that investments under RRSPs compound at a pre-tax rate.

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They do not flow through the estate. Each year, roughly two thirds of Canadians contribute nothing at all.

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There are also provisions for the tax-free transfer of assets to minor children, grandchildren and dependents.

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