What is an RRSP & How Does It Work?

What is an RRSP & How Does It Work?

Before diving into RRSP, ask yourself a question; why do you start a savings account? Well, you may have many answers to that. You would keep some money aside as emergency funds, or maybe you would use the cash to go on that long holiday or it can be for your children’s education. Alongside the options, there’s also the one where start savings account to live a financially stable life in your golden years.

After you’ve retired, and you would want to be financially self-dependent, you would want savings to account for that. Well, this is where an RRSP account comes in; it stands for Registered Retirement Savings Plan and is an ideal savings vehicle for all employees and self-employed residents in Canada. You can contact Harpreet Puri, for further detail and help you with all the paperwork. Call her and schedule an appointment today.

Know about RRSP

RRSP is a savings vehicle introduced by the Canadian government in 1957.  It was created as a part of the Canadian Income Tax Act to be utilized for all working Canadians as a retirement account.  There are several types of RRSP accounts and, but in general, they are st up by one or two associated people (individuals or spouses)

  • Individual RRSP’s are set up by a single person who is the sole contributor of the account
  • In a spousal RRSP, both the spouse and the account holder can contribute and the spouse will have all the advantages as the account holder
  • There are also group and pooled RRSPs which are set up by businesses for their employees

You can discuss your options by getting in touch with Harpreet Puri. She will be more than glad to help you. To learn how an RRSP works, read on.

So, how does this plan work?

Well, RRSP is a tax-advantaged account. What is tax-advantaged you ask?; Tax-advantaged or tax-sheltered accounts come with the benefit of no deposit charges. That means, your annual contributions to the RRSP account is exempted from tax as long as the funds remain in the plan. All capital gains and dividends are also not taxed.

There is a contribution limit, which is 18% of the previous year’s earned income and it is set by the Canada Revenue Agency (CRA). Since the limitation was introduced in 1991, the cap has steadily increased and as of 2020, it is at $27,230 per year. If you contribute over this amount, you will have to pay a 1% penalty amount on that over-contribution.

Another feature of the RRSP is, Canadians are allowed to hold a wide range of investments in this type of account. Some of them are in the form of:

  • Mutual funds
  • Index funds
  • Cash
  • Gold and silver bars
  • GICs etc

So what are you waiting for, contact Harpreet Puri to open an RRSP account start saving for your golden years today