How To Contribute To Registered Retirement Savings Plan Of Canada?

Posted on August 24, 2010
Filed Under Investment Bonds | Leave a Comment

The Canadian Government provides a program to its citizens that allows them to save for retirement. It is called the Registered Retirement Savings Plan. From this point forward it will be referred to as RRSP. The topics covered by this article are advantages, eligibility requirements, and options a persons has in opening an account.

Do not think of the RRSP as an investment in itself. A more accurate description would be that it is an account which HOLDS investments. A person can buy an investment in an account which one then contributes into. It can be compared to brokerage accounts one can open at, for example, Canada’s Royal Bank.

This retirement plan has many advantages. It is registered by the Canadian federal government, legally recognized as a trust, and can hold many different types of investments. However, the major advantage the plan provides is its unique tax benefits.

When one contributes money to any retirement plan it grows over time and the contributor earns profits in the form of interest, dividends, or capital gains. The purpose of such being that, once the person reaches retirement age, they will have enough money to continue a certain level of lifestyle without working a “normal” job. Thus, allowing a person to do anything his or her heart desires while still being able to pay any and all necessary bills. One of the two major tax benefits of an RRSP, tax deferred growth, involves these profits.

Disabuse yourself of the idea that tax deferred means tax-free. The good news is that, unlike most other retirement plans, the RRSP does NOT tax immediately upon profits made into the account. It is a known fact that the income of retirees is less than the income a retiree previously made in peak working years. This simple fact is why tax deferred growth is considered a benefit.

Tax credit is the other major benefit of an RRSP. Essentially, as a person contributes more money into the plan, the income taxed by the government is reduced.

So, who is eligible to open a Registered Retirement Savings Plan? The following paragraphs will cover the requirements/criteria involved.

Although, there are criteria involved in opening an account, it is a fact that practically any working age Canadian is eligible. What follows is a list of said criteria.

Be working within Canada.

68 years of age or younger

You have contribution room

Pay taxes to the government of Canada.

Any of Canada’s financial institutions are able to open an RRSP to eligible Canadians in person or online.

Canada’s Registered Retirement Savings Plan allows a citizen to take control of their retirement due to the many benefits provided. Most Canadians will fall into the range of eligibility and, once eligible, have many options in opening an account.

Visit this Guide to Banking in Canada to learn more about different RRSP Investments.

Comments

Leave a Reply