DEFINITION of 'Registered Retirement Savings Plan - RRSP'

A legal trust registered with the Canada Revenue Agency and used to save for retirement. RRSP contributions are tax deductible and taxes are deferred until the money is withdrawn. An RRSP can contain stocks, bonds, mutual funds, GICs, contracts and even mortgage-backed equity.

RRSPs have two main tax advantages:

1. Contributors deduct contributions against their income. For example, if a contributor's tax rate is 40%, every $100 he or she invests in an RRSP will save that person $40 in taxes, up to his or her contribution limit.

2. The growth of RRSP investments is tax sheltered. Unlike with non-RRSP investments, returns are exempt from any capital-gains tax, dividend tax or income tax. This means that investments under RRSPs compound at a pretax rate.

BREAKING DOWN 'Registered Retirement Savings Plan - RRSP'

In effect, RRSP contributors delay the payment of taxes until retirement, when their marginal tax rate will be lower than during their working years. The Government of Canada has provided this tax deferral to Canadians to encourage retirement savings, which will help the population to rely less on the Canadian Pension Plan to fund retirement.

To learn more about RRSPs, check out How are Registered Retirement Saving Plans (RRSPs) taxed?

RELATED TERMS
  1. Registered Retirement Savings Plan ...

    The maximum amount that the Canada Revenue Agency (CRA) allows ...
  2. Registered Retirement Savings Plan ...

    Assets invested in an RRSP. RRSP contributions can be made at ...
  3. Registered Retirement Savings Plan ...

    The amount that a Canadian taxpayer contributes to his or her ...
  4. Pension Adjustment - PA

    The amount of contributions that can be made to a Registered ...
  5. Matured RRSP

    A Canadian retirement savings vehicle that is registered with ...
  6. Tax-Deferred Savings Plan

    A savings plan or account that is registered with the government ...
Related Articles
  1. Retirement

    Registered Retirement Savings Plans (RRSP)

    Learn how the Canadian government makes saving for your post-work years easy. We take you from your first contribution to your first withdrawal.
  2. Taxes

    Canadians: Smart Ways To Use Your Tax Refund

    Taxes are an annoying annual chore akin to going to the dentist. Luckily, however, some of us get a nice tax refund after the process. It's important to use this refund wisely though, and Canadians ...
  3. Financial Advisor

    TFSA Or RRSP?

    Canadians now have two options for retirement savings. Find out how to figure out which one's best for you.
RELATED FAQS
  1. What are the main reasons to obtain a Registered Retirement Savings Plan (RRSP)?

    Learn about some of the major benefits of opening and contributing to a Registered Retirement Savings Plan throughout your ... Read Answer >>
  2. Is a Registered Retirement Savings Plan (RRSP) taxable in the U.S.?

    Learn how the IRS treats Canadian Registered Retirement Savings Plans that are held by U.S. citizens or residents, and discover ... Read Answer >>
  3. What are the main reasons not to get a Registered Retirement Savings Plan (RRSP)?

    Find out some of the reasons why you might want to reconsider opening up a Registered Retirement Savings Plan and instead ... Read Answer >>
  4. How are Registered Retirement Saving Plans (RRSPs) taxed?

    Learn about registered retirement saving plans, and find out how the Government of Canada provides tax benefits for those ... Read Answer >>
  5. Should a Canadian citizen who lives and works in the U.S. continue to contribute ...

    No, a U.S. resident should not contribute to a RRSP account. RRSP contribution rules allow you to contribute a certain percentage ... Read Answer >>
  6. What are the penalties for early withdrawal from a Registered Retirement Savings ...

    Learn about the three major penalties associated with making an early withdraw from your Registered Retirement Savings Plan ... Read Answer >>
Hot Definitions
  1. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
  5. Long Run

    A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all ...
  6. Quasi Contract

    A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A normal ...
Trading Center