I often here people stating extremes when discussing RRSP’s, some seem to love them, others hate them. I believe RRSP’s are a tool, when used correctly they can be a powerful tool. The key to ensuring you make sure they are used when they will benefit you is to understand how they work, and how they compare to the other common alternatives.Basic RRSP benefits:
- The amount contributed to an RRSP can be deducted from your taxable income; and
- The growth in an RRSP is tax deferred.
Basic RRSP Downside:
- All withdraws from an RRSP are 100% taxable; and
- In Retirement you will be forced to move the funds out of the RRSP.
Most investments in Canada can be held in an RRSP, so you can choose the investments that best suit your needs to hold inside your RRSP. Most financial initiations can set up an RRSP, often by simply checking a box on the application.
The main consideration you need to ask youself is; does the tax benefit now make up for the tax you will pay later? As a general rule if you are making less now than when you plan to withdraw the funds then an RRSP may not be for you, but if you are making more now than when you plan to withdraw the funds, RRSPs are likely a great option.
In either case saving for the future is important, whether in or outside of an RRSP.
I do recommend you interview a few professionals before selecting one to help guide you through the process as a blog does not offer the tailored solutions that individual often require. If you live in BC, we would be happy to answer your questions
This post has been kept general, to find out if an RRSP is right for you, it is advised that you seek a professional opinion. Details on RRSP’s can be found on the Government of Canada website. This information is assumed correct, but is for information purposes only and it is up to the reader to verify it’s accuracy before acting on anything written on this site. More details about the use of the content can be found on the site disclaimer located under the “Getting to know us” tab. We do not offer any tax or legal advice.
This entry was posted on Sunday, February 14th, 2010 at 6:11 pm and is filed under Financial. You can follow any responses to this entry through the RSS 2.0 feed.
