Why RRSPs are vital to your retirement
An RRSP is a generous gift for you from the government. In
exchange for your willingness to save for your retirement
in a registered plan, the government is willing to . . .
- Let you deduct your contribution from your
taxable income, letting you reduce the taxes you pay each
year by as much as $8,000
- Let you grow your money in the plan tax-deferred
 For
these two reasons, an RRSP is one of the most powerful and
beneficial financial tools you’ll find anywhere. Which
is why they are used by just about everyone and for many are
the foundation of their retirement income.
Here’s how an RRSP works.
The first thing you do is establish your RRSP account at
a financial institution or brokerage house. You can then contribute
money to your RRSP up to an annual limit. You’re then
entitled to deduct the amount of your contribution from your
gross income. That reduces the tax you have to pay.
For example, if you contribute $5,000 to your RRSP and your
tax rate is 40%, you'll save $2,000 in taxes. Or looking at
in another way, the $5,000 that you added to your savings
only costs you $3,000. However you look at it, it’s
a great opportunity that you should take advantage of every
year.
And here’s the second gift the government gives you.
All the investments in your RRSP plus all the earnings they
generate are allowed to grow tax-deferred. Your investments
enjoy compound growth in a tax shelter and that’s hard
to beat.
Of course, you do have to pay tax on this money eventually,
but when you do pay tax, it will likely be at a much lower
rate than when you made your contributions. The theory is
that you’ll be retired, your income will be much lower
and you’ll pay tax at a lower rate.
If you’d like to know more about setting up an RRSP,
click
here to find the RBC financial planning professional closest
to you.
Important information about our financial planning services can be found at the bottom of our
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