It's RRSP Season: Resources for Registered Retirement Savings Plans
As RRSP season approaches many of us have to decide whether or not to contribute to our RRSPs or even whether to set one up. So what exactly is an RRSP?
An RRSP (Registered Retirement Savings Plan) is a saving or investing account that you can use to save money and defer taxes. Created in 1957 it was introduced to help Canadians without a company pension plan with a way to save for retirement in a tax-sheltered fund. You can contribute up to 18% of your earned income each year (subject to limits) plus any contribution room not used in prior years. Your final contribution is in the year you turn 71. Your bank can sell you an RRSP as a prepackaged investment which is usually a collection of mutual funds that you can put in an RRSP. Or you can also open an RRSP account at your bank or discount brokerage and put whatever investments you want in it. You can even hold several different RRSP accounts with different institutions.
In his book RRSPs The Ultimate Wealth Builder, well-known financial author, Gordon Pape, recommends the following tips to build a winning RRSP:
- Invest only in things you understand.
- Diversify your plan.
- Take the long view.
- Keep costs low.
- Don't lose money.
- Maximize compounding.
- Review your RRSP every three months.
- Contribute regularly.
There are a number of online resources that you can look at to determine whether RRSPs are right for you. The Government of Canada has comprehensive information on RRSPs, from opening an account to withdrawing funds from your RRSP to transferring funds. The Ontario Securities Commission has excellent information which includes explaining the advantages and disadvantages of RRSPs and comparing RRSPs to TSFAs (Tax Free Savings Accounts).
Note that there are important dates and deadlines for making RRSP contributions for tax refund purposes.
RRSPs may not be the right savings vehicle for you so it's important to do your own research and see what will work best for your personal financial needs.
Interested in more information on RRSPs? Check out these books and ebooks on finances and investing for Canadians.
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