While the decision to use a Registered Retirement Savings Plan (RRSP) has been made more complicated over the last ten years by the popularity of the Tax-Free Savings Plan (TFSA), it is still an important savings tool.
The TFSA allows an individual to contribute after-tax dollars into an investment and withdraw funds with no tax implications. You forego income tax savings now in order to not pay taxes later.
There are still many situations where an RRSP is a more appropriate product over a TFSA.
Contributions to an RRSP are tax deductible and will reduce the amount of income tax paid. When an individual is in a high income tax bracket, they will experience greater savings when contributions are made to an RRSP compared to a lower tax bracket. Once you retire, these funds can be converted to regular income payments. Normally, this will be in a lower tax bracket than when the funds were contributed, which will mean less tax paid than what was originally saved.
A spousal RRSP contribution will allow for income tax savings and also more efficient withdrawal of the funds once retirement income commences.
Funds contributed to an RRSP can also be used as a down payment for the purchase of a first home (up to $25,000) or to pay for your or your spouse’s education costs (up to $20,000). These amounts will then have to be paid back to the RRSP over time.
If you have any questions about which product is the best for your situation, please contact our office and talk to one of our Credential Asset Management Inc. Mutual Funds Investment Specialists.
Mutual funds are offered through Credential Asset Management Inc. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds.