What is RRSP Canada?
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- Updated On:29-Nov-2022
- Replies:1
Short Answer
RRSP is Registered Retirement Savings Plan, which is registered with the federal government of Canada. It can be used as a tax advantageous tool to save up for retirement.
Detailed Answer
What is RRSP Canada
The full form of RRSP is Registered Retirement Savings Plan. It is an investment plan that is registered with the federal government of Canada. Anyone who is below age 71 can commence a RRSP in Canada and can start investing funds for retirement. You can establish a RRSP with any financial institution such as a bank, trust, or an insurance company of your choice.
What can you do within a RRSP?
You can invest in a wide range of financial instruments within an RRSP. They are cash, guaranteed investment certificates, ETFs, mutual funds, shares, corporate bonds, government bonds or a fixed interest.
The contribution limit for taxation year 2022 is 18% of earned income or $29,210 whichever is lower. For example, if your 2021’s earned salary is $49,020 you can contribute up to $8,823. If you earned $100,000 in 2021 you can contribute up to $18,000, whereas if you earned $200,000 in the year 2021, you can contribute a maximum of $29,210.
Pros of RRSP
- The income returns, interest, dividends or any capital gains earned within a RRSP is not taxed.
- You can claim the amount contributed into an RRSP as a deduction in your tax return.
- When someone holds a US share, then they are subject to 15% withholding tax. However, when you own a US share within a RRSP, you are not liable for withholding tax.
- Generally, when you withdraw funds from RRSP you will be taxed, however, when you withdraw the funds to make a down payment for your first home, then you are not required to pay tax.
- Your creditors do not have a claim on your RRSP.
Cons of RRSP
- When you withdraw funds from RRSP, the amounts come under tax radar.
- Once you withdraw your funds from RRSP, you cannot add such amount to unused cap and re-contribute it to RRSP.
- The expiration age of RRSP is 71.
RRSP Canada and its Importance
A retirement plan gives you peace of mind that you have sufficient funds to lead a happy retirement without your monthly or annual salary. Registered retirement savings plan is a tax advantageous retirement tool that every Canadian must make use of.
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Discussion (0)
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