You’re ready to start financially planning your future, but where should you start? Navigating different savings plans and ways to invest your money can be overwhelming.. I’m here to help simplify your journey. One of the many savings accounts you can choose from to start investing your money in is an RRSP. But, what is an RRSP account, how does it work, and is it the best choice for you? I’ve outlined the basics for you here and if you have any questions I’m always just a phone call away.
What is an RRSP?
An RRSP, or a Registered Retirement Savings Plan, is a savings plan that you create and is registered with the Government of Canada to allow you to save for retirement. Each year, you can contribute a certain amount to your RRSP which is deductible on your taxes. The main benefit of an RRSP is the tax on any contributions you make is deferred until you retire. The Canadian Government created RRSPs as a way to give those saving for retirement a tax break. As well as a way to give Canadians motivation towards saving and investing money in their future.
What can an RRSP account do for you?
The biggest benefit of an RRSP is that it’s a tax-deferred account. Let’s say for example you make $80,000 in a year. In that year, you contribute $10,000 to your RRSP account. That means when it comes time to do your taxes, the CRA will treat it as though you made $70,000 not $80,000 when they tax you on it. Remember though, tax-deferred does not mean tax-free. Once you retire and start using your RRSP as a source of income, it will begin to get taxed. However, since you’ll be making less by that point, your tax rate will be much lower than it is now.
One thing to keep in mind with an RRSP account is that if you need to withdraw money from it before you retire, there is usually a fee on the amount you take out as well as tax implications. There is however an exception to that rule. The Home Buyers Plan (or HBP) is a program through the CRA that allows first-time homebuyers to withdraw up to $35,000 tax-free from their RRSP account to put towards a down payment on a house. There is some fine print with using RRSP funds towards a down payment that should be carefully reviewed if you choose to do so. If you plan on using an RRSP account to save for a house, it’s best to consider all your options first, as it’s often not the only option you have.
Want to learn more about RRSPs?
If you think you’re ready to open up an RRSP account, or you’re thinking of using your RRSPs towards a downpayment though want to investigate alternate options, I can help you! As a professional financial advisor and experienced mortgage broker, I can show you the options available to you. I can recommend a savings plan that will best suit your financial needs based on your current situation. To get started, give me a call at (705) 315-0516 to schedule a meeting, and let’s get you on your way to making that dream house a home.