Registered Retirement Savings Plan - RRSP

AAA

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 RRSP contributions are tax deductible and taxes are deferred until the money is withdrawn.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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Locked-In Retirement Account - ...

    A type of registered retirement savings alternative that locks ...
  2. Pension Adjustment Reversal - PAR

    A numerical calculation in certain Canadian pension plans that ...
  3. Life Income Fund - LIF

    In Canada, a type of registered retirement income fund that is ...
  4. Registered Pension Plan - RPP

    A form of a trust that provides pension benefits for an employee ...
  5. Tax-Free Savings Account - TFSA

    An account that does not charge taxes on any contributions, interest ...
  6. Canada Revenue Agency - CRA

    A federal agency that collects taxes and administers tax laws ...
Related Articles
  1. Retire In Style
    Savings

    Retire In Style

  2. Saving For Retirement: The Quest For ...
    Retirement

    Saving For Retirement: The Quest For ...

  3. Will Your Retirement Income Be Enough?
    Retirement

    Will Your Retirement Income Be Enough?

  4. Tax Breaks For Canadian Families
    Retirement

    Tax Breaks For Canadian Families

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center