Registered Retirement Savings Plan - RRSP

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 RRSP contributions are tax deductible and taxes are deferred until the money is withdrawn.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

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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 >>
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    Learn how the IRS treats Canadian Registered Retirement Savings Plans that are held by U.S. citizens or residents, and discover ... Read Answer >>
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  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 >>
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