An RRSP deduction is the tax benefit you receive when you contribute to a Registered Retirement Savings Plan (RRSP). Contributions reduce your taxable income for the year, lowering the amount of income tax you owe.
How It Works
If you earn $70,000 in a year and contribute $10,000 to your RRSP, your taxable income is reduced to $60,000. The deduction is based on your contribution amount and your marginal tax rate, often resulting in a sizable tax refund.
Why It Matters
- Immediate tax savings: Contributions reduce taxable income right away.
- Flexibility: You can carry forward unused contribution room and apply deductions in future years.
Final Thoughts
The RRSP deduction is one of the main advantages of contributing to an RRSP. It helps lower taxes today while building retirement savings for the future.