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How To Contribute To RRSP?

By Cindy Winz

The Registered Retirement Savings Plan, or RRSP, is a program established by the Canadian government in order to provide its citizens a way to save for retirement. This article will cover the retirement plan’s advantages, eligibility requirements, and how to open an account.

Do not think of the RRSP as an investment in itself. A more accurate description would be that it is an account which HOLDS investments. A person can buy an investment in an account which one then contributes into. It can be compared to brokerage accounts one can open at, for example, Canada’s Royal Bank.

This retirement plan has many advantages. It is registered by the Canadian federal government, legally recognized as a trust, and can hold many different types of investments. However, the major advantage the plan provides is its unique tax benefits.

Of the many benefits this plan provides, two stand out as major benefits. The first, tax deferred growth, involves the profits made by the account. These profits include interest, dividends, and capital gains.

First of all, it needs to be mentioned that tax deferred is not equal to tax-free. Most other retirement plans not only tax a person when their investment is withdrawn, but also during the accrual of profits to the account. The RRSP sets itself apart in that, while it does tax upon withdrawal at the point of retirement, its does NOT tax immediate profits as earned income. This is considered a benefit due to the fact that most retirees’ income tend to be lower than income made in their peak earning years.

Consider this real world example to gain an understanding of the other major tax benefit, called tax credit, this plan provides. Mary the receptionist makes makes $34,000 in a year and the cap on contributions for that year is 18% or $15,000 (whichever is less), Mary may only contribute $6,120 that year since that is 18% of $34,000. In accordance with the RRSP’s tax credit benefit, this means that Mary only has to pay tax on $27,880 of her income ($34,000 – $6,120 = $27,880) if she contributes his maximum to his RRSP. Because Mary contributed to his RRSP, she received $6,120 in tax credits

That being said, there are eligibility criteria to open an RRSP. Let’s go over these now.

The good news here is that virtually any working-age Canadian is eligible. However, there are criteria a Canadian must meet. The following lists these criteria.

Be working within Canada.

You are under the age of 69

You have contribution room

You file income tax with the government of Canada.

Once eligible, a person has a couple of options regarding the opening of an account. Firstly, one can visit any of Canada’s financial institutions (i. E. Bank, credit union, caisse populaire, etc.). Secondly, an eligible person can open an account by logging onto the websites of most brokerages or major Canadian banks if they prefer to not do so in person.

Canada’s Registered Retirement Savings Plan allows a citizen to take control of their retirement due to the many benefits provided. Most Canadians will fall into the range of eligibility and, once eligible, have many options in opening an account.

Many Canadian Banks offer Registered Retirement Savings Plan, which can help you save for retirement.

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Article Citation
MLA Style Citation:
Winz, Cindy "How To Contribute To RRSP?." How To Contribute To RRSP?. 25 Aug. 2010. 3 Aug 2014 <>.

APA Style Citation:
Winz, C (2010, August 25). How To Contribute To RRSP?. Retrieved August 3, 2014, from

Chicago Style Citation:
Winz, Cindy "How To Contribute To RRSP?"

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