Retirement Solutions

A Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. The RRSP’s purpose is to promote savings for retirement. Rules determine the maximum contributions and the assets allowed.  Approved assets include savings accounts, guaranteed investment certificates (GICs), bonds, mortgage loans, mutual funds, income trusts, corporate shares (stocks), foreign currency and labour-sponsored funds.

Taxation:

For the most part, contributions to RRSPs are deductible from taxable income, reducing income tax payable. Since Canada has a progressive tax system, taxes are reduced at the highest marginal rate.  Disbursements from an RRSP are taxable as income at the time of withdrawal regardless of the type of profit earned while inside the RRSPs

Types of RRSPs:

  1. Individual RRSP

With Individual RRSPs, the account holder is also called a contributor, as only they contribute money to their RRSP.

  1. Spousal RRSP

A Spousal RRSP allows a higher earner, termed a spousal contributor, to contribute to an RRSP in the spouse’s name. In this case, it is the spouse who is the account holder.

  1. Group RRSP

In a group RRSP, an employer arranges for employees to make contributions, as they wish, through a schedule of regular payroll deductions. The employee can decide the size of contribution per year and the employer will deduct an amount accordingly and submit it to the investment manager selected to administer the group account. The contribution is then deposited into the employee’s individual account and invested as specified.

The primary difference with a group plan is that the contributor realizes the tax savings immediately, instead of having to wait until the end of the tax year.

  1. Pooled RRSP

Pooled Retirement Pension Plan (PRPP) is legislation introduced during the 41st Canadian Parliament aimed at employees and employers in small businesses, as well as the self-employed.