Registered Retirement Savings Plan

What is a Registered Retirement Savings Plan or RRSP?

In 1957, the Canadian government established the Registered Retirement Savings Plan (RRSP) in response to the fact that Old Age Security wasn’t enough to support most people in the senior years of their life. While the RRSP remains an effective approach to funding your life after employment, a lot has changed since it’s introduction.

Canada’s retirement savings account of choice

When the RRSP was first introduced, it presented as a means for Canadian employees and self-employed workers to make tax deferred investment contributions that could be withdrawn at retirement. It isn’t hard to see that RRSPs provide Canada’s workers the flexibility and incentive to save for later life, even after 60 years since the RRSP was introduced.

Canada’s RRSP program have reduced dependence on government welfare pensions and given many workers distinct advantages over placing their wealth in other types of accounts.

Some of these RRSP benefits include:

Of particular importance is the last point, as an individual’s marginal tax rate will likely be lower upon his or her retirement than when he or she was employed. This effectively results in a tax “break” upon withdrawal of funds since your working years are when your earnings are likely to be the highest.

Flexibility in RRSP withdrawal terms

In contrast to Individual Pension Plans (IPPs), Registered Retirement Savings Plans offer Canada’s workers a customized approach to managing their retirement wealth. Moreover, you can reap the benefits of such approaches even before you even leave the workforce. In certain special circumstances, you may be able to make a no-penalty RRSP withdrawal:

Furthermore, the funds in your RRSP will also be available for your spouse to use, and these circumstances mentioned above pertain to them as well. Engaging in certain income-splitting strategies through retirement with your significant other will also result in tax benefits to help you get the most out of both of your RRSP plans.

In addition using the Registered Retirement Savings Plans as tool to increase your retirement nest egg, RRSPs may also be used as a “safety net” for unexpected financial emergencies while you are employed. However, it’s in your best interest to use other sources of emergency funding before withdrawing from your RRSP. Early withdrawals from your plan will be immediately taxed and will count towards your taxable income for the fiscal year. Because of this, our professionals recommend using this feature of your RRSP only as a last resort.

Complementing your RRSP

While the RRSP is a must-have for workers throughout Canada, it is not without its limits.

Your allowable RRSP contribution for the current year is the lower of: 18% of your earned income from the previous year, or The maximum annual contribution limit for the taxation year (determined each year by the CRA), or The remaining limit after any company sponsored pension plan contributions.

Since yearly contributions do have an annual cap, you may exhaust your ability to use this tax deferment instrument . For this reason, we recommend pairing your RRSP with a supplementary plan like an Individual Pension Plan (IPP), which has a much higher annual contribution limit.

By using an additional retirement savings instrument like an IPP in your overall retirement savings plan, you can increase your yearly retirement savings contributions and lessen your tax burden. The only down to mention is the individual pension plan instrument does not have the same income splitting attributes as the RRSP.

Let us do, what we do best.

Our team will help you prepare for life after work and by ensuring you’re leveraging all the tools available to optimize contributions towards retirement. We guarantee you’ll receive excellent advice and world-class service every time you deal with our retirement planning specialists. Take the next step in planning your financial future by consulting an MLD Wealth Management associate today.


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The information on this web site is intended for use by persons resident in Canada. Independent Wealth Management advisors are registered with IIROC through Canaccord Genuity Corp. and operate as agents of Canaccord Genuity Corp. Canaccord Genuity Wealth Management is a division of Canaccord Genuity Corp., Member - Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.