A Registered Retirement Savings Plan (RRSP) is an account, registered with the federal government, that you use to save for retirement. RRSPs have special tax advantages.
3 tax advantages
Tax-deductible contributions – You get immediate tax relief by deducting your RRSP contributions from your income each year. Effectively, your contributions are made with pre-tax dollars.
Tax-sheltered earnings – The money you make on your RRSP investments is not taxed as long as it stays in the plan.
Tax deferral – You'll pay tax on your RRSP savings when you withdraw them from the plan. That includes both your investment earnings and your contributions.
How much you can contribute
Anyone who files an income tax return and has earned income can open and contribute to an RRSP. There are limits on how much you can contribute to an RRSP each year. You can contribute the lower of:
18% of your earned income in the previous year, or
the maximum contribution amount for the current tax year: $23,820 for 2013.
If you are a member of a pension plan, your pension adjustment will reduce the amount you can contribute to your RRSP.
You can carry forward unused contributions: If you don’t have the money to contribute in a year, you can carry forward your RRSP contribution room and use it in the future. Learn more about how RRSPs work.
Investments you can hold in an RRSP
Investments that can be held in an RRSP are called qualified investments. They include:
Gold and silver bars
Bonds (including government bonds, corporate bonds and strip bonds)
Mutual funds (only RRSP-eligible ones)
Equities (both Canadian and foreign stocks)
Mortgage-backed securities, and
Investments you can't hold in an RRSP
Personal property such as art, antiques and gems
Commodity futures contracts
As of March 22, 2011, you also can't hold any of the following investments in your RRSP:
Prohibited investments – Examples: debt you hold, investments in entities in which you hold an interest of 10% or more.
Non-qualified investments – Examples: shares in private holding companies, foreign private companies and real estate.
If you buy these investments for your RRSP, you will be charged a tax equal to 50% of their fair market value. You may apply for a refund if you dispose of the investment from your RRSP by the end of the year after the year the tax applied. Learn more about these rules.
Understand the risks: The value of your RRSP may go down as well as up, depending on the investments it holds. Learn more about investment risks.
How long your RRSP can stay open
Where to open an RRSP account
Banks and trust companies
Credit unions and caisses populaires
Mutual fund companies
Investment firms (for self-directed RRSPs)
Life insurance companies
RRSP or TFSA? Both offer tax advantages. Learn how they differ by reading Comparing TFSAs and RRSPs.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca
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