RRSP: The Top 5 Advantages


RRSP is an acronym for Registered Retirement Savings Plan. This is used by citizens of Canada to save for retirement. RRSP is funded by the federal government and is a highly beneficial plan. They provide a slew of benefits and can be availed by any citizen of Canada. There are different types of RRSP plans and accounts which offer different benefits. Here are the five common benefits of RRSP.

  1. Tax benefits:
    The main benefit of an RRSP is the tax advantage you get when you open the account. When you have this federal government funded account, you can make deductions on the overall tax payments and make your yearly payment much less than it is. There is a provision which allows the owner of such an account, the permission to deduct the deposit for the account. RRSP results in a lot of savings eventually.
  2. Deferred taxes:
    RRSP doesn’t completely eliminate taxes. It allows deductions, but it also makes you pay the tax once the monthly payments start. The tax which an individual pays after retirement is far less when compared to the tax they have to pay while they are working. This means that even when they are paying tax, they make savings on the overall budget. RRSP could really help during old age. It allows an individual to have peace of mind during retirement when they have no form of income.
  3. Borrowing is allowed:
    The RRSP account allows you to borrow a certain sum for your needs. These needs can be to pay off your mortgage or even a down payment for the home you always wanted to buy. The best part about this feature that it doesn’t get taxed if you are able to pay the borrowed sum within the stipulated time period. This feature can help you clear of your debts too. Credit card debts and other debts can be cleared using the amount borrowed. It can help in financial analysis and change.
  4. Splitting can be done:
    If you have a spouse, you can opt for a plan which features a joint account and share the taxes. If this is not suitable, then you can even opt for a plan for both of you and contribute to the one which is lower so that you have equal income at the end of the term. This can even work towards reducing your tax payments in the future as your plan will be shared and the overall income rate will be less.
  5. Convertible account:
    Your RRSP can be converted to a registered retirement income fund or even an annuity account. This will allow you to receive your payments on a yearly basis. You are obligated to make yearly tax payments which are at the determined rate. These are charged to your account and the rest of the income is submitted to you. You can have a fairly comfortable retirement and hence make life simple. This can prove to be a highly beneficial plan and a steady source of income.