What is RRSP ?A Registered Retirement Savings Plan (RRSP) is an investment account designed primarily for saving toward your retirement years. RRSP have special tax benefits and its regulated by Government of Canada. Your RRSP constribution can reduce your imcome tax you pay in that year. Also your money growth is also tax free. You only pay tax on amount you withdraw. Unique features of RRSPAnnual Contribution Limit Based on Last year Income |
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Your current year RRSP contribution limit is lower of 18% of your earned income from the previous year, or the maximum annual contribution limit for the taxation year. Your contribution limit will be reduced by any company-sponsored pension plan contributions.
Reduce income tax for current year Contributions to RRSPs are deductible from taxable income, reducing income tax payable. Since Canada has a progressive tax system, taxes are reduced at the highest marginal rate Invest earning are tax free Any income (interest, dividend, money growth) earned on your investment of your RRSP account is also tax free until you withdraw. If you withdraw it during retirement, you already in very lower tax bracket so, you get benefit from lower tax rate. Benefit of Spousal RRSP A Spousal RRSP allows a higher earner, termed a spousal contributor, to contribute to an RRSP in the spouse’s name that will reduce tax on higher earner family member. Flexible Carry Forward If you can’t make your maximum contribution one year, your unused contribution limit is carried forward and you can make it up in later years. Varities of Investment Options You can invest your rrsp contribution to GIC, higher interest saving account, Stocks, Bonds etc. Special withdrawal programs While the original purpose of RRSPs was to help Canadians save for retirement, it is possible to use RRSP funds to help purchase one’s first home under what is known as the Home Buyer’s Plan. Canadians can borrow, tax-free, up to $25,000 from their RRSP (and another $25,000 from a spousal RRSP) towards buying their first residence. This loan has to be repaid within 15 years after two years of grace. You can withdraw RRSP funds also for your post secondary education with certain terms & condition Types of RRSPs
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