An RRSP, or Registered Retirement Savings Plan, is one of the best tools Canadians have to save for the future while also paying less tax today.
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It might sound like a complex financial product, but at its core, an RRSP is just a special kind of account the government created to help you save money for retirement. It rewards you with tax breaks now in exchange for saving for later.
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If you’ve ever thought,
“I should probably start saving for the future,” the RRSP is a smart place to begin.
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What Is an RRSP
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An RRSP is a registered account where you can put money that grows tax-free until you take it out. It can hold things like:
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Cash
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GICs (guaranteed investment certificates)
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Mutual funds
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Stocks and bonds
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ETFs (exchange-traded funds)
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You can open an RRSP at your bank, credit union, or through an online investment platform like Wealthsimple, Questrade, or others. You stay in control of your money and choose what to invest in based on your comfort level.
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Why People Like RRSPs
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The big reason people use RRSPs is tax savings. When you contribute to your RRSP, you can deduct that amount from your income when you file your taxes.
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For example, if you made $60,000 and put $5,000 into your RRSP, you’d only be taxed as if you made $55,000. That can lower your tax bill and even lead to a refund.
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Meanwhile, the money in your RRSP grows tax-free as long as it stays in the account. You only pay tax on it when you take it out, which most people do later in life when they’re retired and in a lower tax bracket.
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This is why the RRSP is often called a "tax deferral" tool. You delay the taxes until a time when they’ll cost you less.
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How Much Can You Contribute
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Every year, you’re allowed to contribute up to 18 percent of the income you earned the year before, up to a maximum set by the government.
You can find your personal RRSP limit by checking your most recent Notice of Assessment from the CRA, or by logging into your CRA My Account online.
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If you don’t use all your contribution room, it carries forward. That means you can catch up later when you have more money to save.
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When You Take Money Out
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You can withdraw money from your RRSP, but when you do, it gets added to your income and you’ll pay tax on it.
That’s why most people wait until retirement to take money out — when their income is lower.
​There are a couple of exceptions. You can use your RRSP savings for the Home Buyers’ Plan or the Lifelong Learning Plan without paying tax right away, as long as you repay the money over time.
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Bottom Line
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An RRSP helps you do two smart things at once. It helps you build your retirement savings, and it helps you pay less tax today.
You don’t need to be an expert or have a lot of money to start. Even small, regular contributions can add up over time. Think of it as paying your future self first — and getting rewarded for it.
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