What Is Self-Directed RRSP?

Self-directed RRSP is a type of RRSP, or registered retirement savings plan, whose owner determines the asset mix held in the trust. An RRSP is a Canadian retirement savings vehicle to which contributions are tax deductible on an annual basis, up to a certain amount.

The RRSP isn’t an investment per se, but it is a way to protect and shelter investments in a way that can offer the account holder financial benefits, mainly in the form of tax protections and deductions. The RRSP offers special advantages over simply setting up a standard investment savings account because it allows for these specific tax benefits.

Understanding Self-Directed RRSP

A self-directed RRSP gives an investor the ability to determine the portfolio of investment products in their RRSP. Investments that are not normally RRSP eligible, however, are still not allowed in a self-directed RRSP. Your financial advisor, banking institution, or investment firm can advise you as to what types of investments are considered qualified investments that can be included in an RRSP. Some of the most common examples include the following:

  • Government bonds
  • Corporate bonds
  • Mutual funds
  • Securities that are listed on a designated stock exchange

Things to Consider with a Self-Directed RRSP

As the name implies, a self-directed RRSP is a type of RRSP account where the owner or their designated financial representative has an active role in choosing the investments and directing the activities of the account. This setup gives the account owner more control and freedom than they would have with a standard RRSP account.

A self-directed RRSP involves a number of different fees, including set-up fees, annual trustee fees, and transaction fees. The account holder will also incur commission fees for any buying or selling activities, although these fees will often be lower at a discount brokerage.

While an individual or joint account holders can set up an RRSP themselves through a discount brokerage firm to make the process more affordable, most financial experts advise investors to enlist the guidance of a financial advisor who can make suggestions as to the best mix of investments to include in the account.

Aside from the tax advantage provided by the Canadian federal government, a self-directed RRSP account is very similar to a regular investment account.

Owners of self-directed RRSPs are responsible for ensuring that their RRSP investments meet the legal requirements set by the Canada Revenue Agency. The penalty for not meeting these requirements is the loss of the income tax deduction.