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RSP Basics
What is a Registered Retirement Savings Plan (RSP)?
- A Registered Retirement Savings Plan is a savings
plan "registered" with the federal Canadian Revenue Agency (CRA)
- An RSP lets you save money by earning income on a tax-deferred basis until you retire. You don't pay tax on the income
your Registered Retirement Savings Plan earns until you withdraw the money
from your RSP
- An RSP can hold many types of investments, including savings accounts, mutual funds, Guaranteed Investment Certificates (GICs), stocks, and bonds
Learn more:
Benefits of a Registered Retirement Savings Plan
- Contributions to an RSP are tax deductible. An RSP can help lower your taxable
income and your annual tax liability. (The maximum contribution limit is 18%
of your previous year's earned income, up to a maximum of $19,000 in 2007
- Income earned by the investments in your RSP is tax-sheltered until withdrawn. The earlier
you start investing, the more time your investments have to grow tax
sheltered. By waiting until retirement to withdraw income, you can benefit
from a lower tax rate.
- At retirement, you can transfer your RSP into a number of retirement income options, such as a Registered Retirement Income Fund (RIF), where your investments continue to grow, tax-sheltered until you withdraw them. More about retirement income
options
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Spousal RSP
- A spousal RSP is a retirement savings plan by way of an income-splitting strategy in which the planholder's spouse makes contributions to the RSP on behalf of the planholder
- A spousal RSP is usually opened in the name of the spouse with the lowest income. Then, when funds are withdrawn at retirement, the funds may be taxed at a lower rate
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Locked-In RSPs (LRSPs) and Locked-In Retirement Accounts (LIRAs)
- A Locked-In RSP (LRSP) or Locked-In Retirement
Account (LIRA) is an RSP that is also governed by provincial or federal
pension benefits legislation.
- The funds invested in an LRSP or LIRA come from vested pension assets from a previous employer.
- In accordance with provincial or federal legislation,
you are prohibited from taking pension assets in cash when you change
employers. Your options include leaving them with your former employer, or
transferring them to an LRSP or LIRA.
- An LRSP or LIRA offers the same tax-sheltered growth as a regular RSP, and the same range of eligible investments. Unlike an RSP, you can't withdraw your funds until you reach a certain age, which depends on the province the pension plan is registered in.
At that time, funds can be transferred to one of the following options:
- Annuity
- Life Income Fund (LIF)
- Locked-in Retirement Income Fund (LRIF)
- Prescribed RIF (for funds governed by Saskatchewan and Manitoba)
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Gaining a financially secure future
Government programs, such as Canada Pension Plan (CPP), Quebec Pension Plan (QPP) and Old Age Security (OAS), may provide only a portion of your income in retirement. Even a company pension plan may leave you short in achieving the retirement you want. That's why it is beneficial to contribute regularily to your RSP every year.
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