RRSPs

RRSPs, otherwise known as a Registered Retirement Savings Plans, are a tax-deferred plan used for, you guessed it, retirement savings. It is tax-deferred by having all contributions to your RRSPs being tax deductible. This means that the money invested into an RRSPs can reduce your taxable income for that year, and can possibly even result in a tax refund. This makes an RRSP a great tool to use for investing your money for the future, and your retirement. In this article we are going to cover the main things you should know before investing in an RRSP including who should invest in an RRSP, how to use an RRSP and the rules around them, and explaining the differences between an RRSP and a TFSA.

While it’s never too late to start investing, in the specific case of RRSPs that is not technically true. RRSPs have an age limit where you cannot contribute to them after the year you turn 71 years old, and at that point an RRSP can be converted to a RRIF (Registered Retirement Income Fund), or withdrawn and taxed at the tax rate applicable at that time. However, for anyone under 71, an RRSP is a great way to save and invest money for your eventual retirement mainly due to the aforementioned tax benefits, meaning that you get to invest money that only gets taxed when withdrawn, allowing you to defer that tax for retirement when your income, and by extension your tax bracket, will be lower allowing you to pay less tax than you would otherwise, and be growing that untaxed money in investments.

If you are wanting to invest using an RRSP, there is another important point to note, there is a limit to how much money you can contribute to one in a given year. For the year 2023, your contribution limit is 18% of your 2022 income, up to a maximum of $29,210. It also gets a bit more complicated for some niche cases, because you can also carry forward contribution room from previous years. However, because this contribution room is based on income, you can only accrue contribution room in years where you had an income, and for ages under 18 the maximum contribution room is $2000. If the maximum contribution room is exceeded by more than $2000, there is a 1% per month tax on all of the excess contributions until they are withdrawn.

Choosing investments for RRSPs can be complicated, and the investments you choose should consider things like your risk tolerance, your time horizon and objectives, and your age and stage of life. If you are interested in investing your money in an RRSP, don’t hesitate to contact us to get started.