Registered Retirement Savings Plans (RRSP)

Registered Retirement Savings Plans (RRSPs) are open to anyone, at any age, and can be held in addition to a locked-in plan. You can open as many of these plans as you want, but you must abide by the annual personal contribution limit.  RRSP accounts can be opened at any bank, credit union, trust company, insurance company, investment dealer and some mutual fund companies directly.

The deposits investors make to an RRSP are tax-deductible. The maximum amount you can contribute is basically set at a certain dollar amount for the year, which increases annually, or 18% of earned income, whichever is the less of these two amounts.

“Earned income” is specifically defined by the government, and includes income from the following sources:

  • Salaries or wages minus any allowable deductions.
  • Income from a business, either a sole proprietor or a partnership.
  • Income from royalties, including those for inventions and authored works.
  • Disability pensions from both Canada Pension Pensions and Quebec Pension Plans, assuming residency in Canada when the payments were made.
  • Real estate net rental income.
  • Taxable net research grants.
  • Alimony and maintenance payments.
  • Supplementary unemployment benefit plan payments.

The following items are then subtracted:

  • Losses from businesses either as a sole proprietor or as a partner (must be actively involved).
  • Net rental losses.
  • Alimony or maintenance payments that are deductible.
  • Negative cumulative capital losses that are eligible and that have been included in business income.

There are a wide range of investments you can choose within RRSPs including; GICs, bonds, mutual funds and most stocks.

The return on the investments within the RRSP is not taxed as long as it stays in the registered account.

When individuals withdraw funds, the withdrawal will be a combination of your deposits plus returns and withdrawals are taxed at individual’s marginal tax rate.

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