A Registered Retirement Savings Plan (RRSP) is a Canadian investment account designed to help individuals save for retirement. Contributions are tax-deductible, and investment growth is tax-deferred until withdrawal.
How It Works
You contribute pre-tax dollars to your RRSP, lowering your taxable income for the year. Investments grow tax-free inside the account, but withdrawals are taxed as regular income. Contribution limits are set annually, based on a percentage of your income up to a maximum cap.
Benefits
- Tax deduction: Contributions reduce your taxable income.
- Tax-deferred growth: Investments grow without being taxed until withdrawal.
- Retirement planning: Provides long-term savings that can be converted into income during retirement.
Final Thoughts
An RRSP is a cornerstone of retirement planning in Canada. It offers immediate tax benefits and long-term growth, though withdrawals are taxed and best suited for retirement income.