Featuring Doug Carroll, BDA, JD, LLM(Tax), CFP, TEP Tax & Estate Specialist, Aviso Wealth Inc.
A registered retirement savings plan (RRSP) helps you save towards retirement in a tax- effective way. Through five key features, an RRSP encourages you to save, lets you defer tax so you can accumulate more, and paves the way for you to ultimately reduce tax on your retirement income.
Tax-deductible contributions
For every dollar you place into an RRSP, you can take a deduction against your income. In effect, you are setting aside what would otherwise be current income in an RRSP, where it can be invested until you draw on it in future.
Investing pre-tax dollars
Had you not made an RRSP contribution, you would have been taxed on that amount. That would have left you with less money to be invested in your hands directly as compared what is available to be invested in your RRSP. Put another way, you are investing pre-tax dollars as opposed to after-tax dollars.
Tax-sheltered earnings and growth
With the benefit of those larger pre-tax dollars, the next step in using an RRSP is to start investing your money. As those investments grow and earn income, there is no tax to be paid while the money is inside the RRSP, or as is commonly stated, it is “tax-sheltered.”
Compounded reinvestment
Just as using pre-tax money gives you more to start with, reinvesting tax-sheltered income can accelerate your growth. You earn income on your original contributions, and in turn that income earns income. Year after year, this income-on-income becomes an increasing portion of your returns, in time possibly exceeding what you earn on your own contributions.
Tax deferral until withdrawal, likely at lower tax bracket
Upon eventual withdrawal, you will be required to pay tax. Even so, you will commonly be at a lower tax bracket in your later years than in your working years when you contributed, so you will pay less tax overall by having used your RRSP.
An advisor can provide more details on the mechanics of RRSPs, and help you decide how you can take best advantage of them to secure your retirement.
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Aviso Wealth Inc. ('Aviso') is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and The CUMIS Group Limited. The following entities are subsidiaries of Aviso: Aviso Financial Inc. (including divisions Aviso Wealth, Qtrade Direct Investing, Qtrade Guided Portfolios, Aviso Correspondent Partners), Aviso Insurance Inc., Credential Insurance Services Inc. and Northwest & Ethical Investments L.P.
