How does an RRSP work? | Mike Butean

Updated: Feb 10

In this article, I will talk about how does the RRSP work

What is an RRSP?

An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute.

Deductible RRSP contributions can be used to reduce your tax.

Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan.

Registered Retirement Savings Plans were created in 1957 as part of the Canadian Income Tax Act.2 They are registered with the Canadian government and overseen by the Canada Revenue Agency (CRA), which sets rules governing annual contribution limits, contribution timing, and what assets are allowed.

How many types of RRSP are there?

  • An Individual RRSP is set up by a single person who is both the account holder and the contributor.

  • A Spousal RRSP provides benefits for a single spouse and also a tax benefit for both spouses. A high-earner (spousal contributor) may contribute to a Spousal RRSP in their spouse's name (the account holder). Since retirement income is divided evenly, each spouse can benefit from a lower marginal tax rate.

  • A Group RRSP is set up by an employer for employees and is funded with payroll deductions. It is administered by an investment manager and affords contributors the advantage of immediate tax savings.

  • A Pooled RRSP is an option created for small business employees and employers, as well as the self-employed.

How does an RRSP work? What type of approved assets can you have in an RRSP?

Several types of investment and investment accounts are permitted in RRSPs. They include:

  • Mutual funds & Segregated Funds

  • Exchange-traded funds

  • Guaranteed investment certificates

  • Savings accounts

  • Equities

  • Bonds

  • Mortgage loans

  • Income trusts

  • Foreign currency

Feel free to contact me if you need help with setting up an RRSP or you wish to move it in a safer bet.


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