Registered Retirement Savings Plan (RRSP)
A Registered Retirement Savings Plan or RRSP is an account that provides tax benefits for saving for retirement in Canada. RRSP refers to a provision in the Income Tax Act that allows a person to shelter financial property from income taxes.
RRSPs may reduce taxes in up to three ways:
- Contributions to RRSPs, up to limits described below, may be deducted from income before calculating income tax due.
- Income earned within the account (interest, corporate dividends, trust distributions, capital gains) is not taxed until money is withdrawn from the plan, allowing the plan to grow faster than the same investments would grow if they were held outside the plan and thus subject to tax.
- Money may be withdrawn from an RRSP in tax years when one is in a lower income-tax bracket because of lower income (due to retirement, unemployment, etc.) than tax years when one makes contributions.
Examples of financial property that can be held in an RRSP are: savings accounts, term deposits, mutual funds and labour-sponsored funds.
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