RRSPs help you save for retirement by deferring income tax and allowing your retirement savings to grow tax-free.
Here are a few frequently asked questions about RRSPs:
How much can I put into my RRSP?
There are rules about how much you can contribute to an RRSP each year. You can put more money into your RRSP as your job income grows. To find out how much you can contribute this year, look at the statement (Notice of Assessment) you got from the government when you did your income taxes last April.
How do I reduce my taxes?
When you put money into your RRSP account, you get a receipt showing how much you contributed. You don’t pay income tax on this amount if it stays in your RRSP. You only pay the tax when you take the money back out of the plan, usually after your retirement.
How might my savings grow?
The money you put into your RRSP is used to buy investments. The money you make on these investments is not taxed until you take it out of the plan. It is important that you choose the type of investment that fits your situation because not all investments are guaranteed to grow. Guaranteed Investment Certificates and Canada Savings Bonds are guaranteed to provide returns where other investments may grow in value or they may lose value.
Can I spend the money in my RRSP before I retire?
Yes, but you will have to pay tax on the amount withdrawn from your RRSP. Although there are a few exceptions to this rule. You will not have to pay taxes on the amount if you use the money to:
- Buy your first home. You can use up to $25,000 from your RRSP for a down payment on your first home.
- Pay for education. You can use some of the money in your RRSP to help you or your spouse go to school. There are rules about how much you can take out each year.
Note: If you borrow money from your RRSP for a home or education, you will have to pay it back, but you will have a number of years to do so.
Visit Canada Revenue Agency’s website for more details about RRSPs.