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 RRSP contributions are tax deductible and taxes are deferred until the money is withdrawn.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. Tax-Deferred Savings Plan

    A savings plan or account that is registered with the government ...
  4. Form 8891

    An IRS form that must be completed by any U.S. citizen or resident ...
  5. Lifelong Learning Plan

    A provision applicable to the Canadian Registered Retirement ...
  6. Registered Retirement Income Fund ...

    A retirement fund similar to an annuity contract that pays out ...
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

    Canadians: The 5 Fastest Ways To Save For A Down Payment

    Some methods of saving for a down payment are faster than others. Here are five tried and true ways to get into a house faster.
  4. Retirement

    Retirement Savings: Tax-Deferred or Tax-Exempt?

    There are advantages and disadvantages to both types of retirement accounts. Find out which is right 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. 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 >>
  5. 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. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  2. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  3. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  4. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  6. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
Trading Center