Registered Retirement Savings Plan (RRSP)
1. Registered Retirement Savings Plan (RRSP)
Save now, tax-free • Pay taxes later at a lower tax bracket
An RRSP is the most effective retirement savings and investing tool available to most Canadians. It lets the money you invest grow unaffected by taxes until it is withdrawn. That means your money has the potential to grow faster and accumulate more returns. What’s more, you’ll get a tax deduction for every dollar you put into an RRSP, reducing your annual tax bill. Here’s how it works:
Tax Sheltered Investment Growth
Investments in an RRSP grow on a tax-deferred basis until money is withdrawn.
The fact that your plan is “registered” with the Canada Revenue Agency allows you to benefit from this tax-deferred growth. Outside an RRSP, most investments are taxed. Interest earned is fully taxable, half of capital gains are taxable and dividends are taxable but eligible for the dividend tax credit. Inside an RRSP, none of these taxes apply. Because you pay no tax on investment growth while your money remains inside an RRSP, your investments compound
far more quickly. At the end of the road, that makes a huge difference. Even though you’ll be taxed on amounts you withdraw from RRSP savings during retirement, your tax rate will likely be lower than during
your working years. So the tax bite will be considerably smaller. And the money left in the retirement plan continues to grow sheltered from tax.
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