Registered Retirement Savings Plan - RRSP

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 RRSP contributions are tax deductible and taxes are deferred until the money is withdrawn.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

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

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RELATED FAQS
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    The Government of Canada created Registered Retirement Savings Plans to allow Canadians to contribute tax-deferred income ... Read Full Answer >>
  2. When can you withdraw your savings from a Registered Retirement Savings Plan (RRSP)?

    The standard age for withdrawing savings from a Registered Retirement Savings Plan (RRSP) is 71. Once you have reached this ... Read Full Answer >>
  3. What are the differences between a Registered Retirement Savings Plan (RRSP) and ...

    Registered Retirement Savings Plans (RRSP) and Registered Pension Plans (RPP) are both retirement savings plans that are ... Read Full Answer >>
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    Deciding to borrow money from your retirement plan can be complicated. If you are considering taking out a loan from your ... Read Full Answer >>
  5. What are the Registered Retirement Savings Plan (RRSP) contribution limits?

    As of 2014, the annual contribution limit for Registered Retirement Savings Plans is the lesser amount of 18% of your earned ... Read Full Answer >>
  6. How are Registered Retirement Saving Plans (RRSPs) taxed?

    A registered retirement savings plan is a tax-deferred retirement plan that is registered with the Government of Canada. ... Read Full Answer >>
  7. What are the main differences between a Registered Retirement Savings Plan (RRSP) ...

    A registered retirement savings plan is a financial product designed to help you save for your retirement, and a registered ... Read Full Answer >>
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