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What is a RRSP?

 

   A Registered Retirement Savings Plan or RRSP is an account that provides tax benefits for saving for retirement in Canada. RRSP refers to a provision in the Income Tax Act that allows a person to shelter financial property from income taxes.

 

RRSPs may reduce taxes in up to three ways:

 

1. Contributions to RRSPs, up to limits described below, may be deducted from income before calculating income tax due.

 

2. Income earned within the account (interest, corporate dividends, trust distributions, capital gains) is not taxed until money is withdrawn from the plan, allowing the plan to grow faster than the same investments would grow if they were held outside the plan and thus subject to tax.

 

3. Money may be withdrawn from an RRSP in tax years when one is in a lower income-tax bracket because of lower income (due to retirement, unemployment, etc.) than tax years when one makes contributions.

 

Deposit Insurance: All credit union deposits are insured by DICO up to $100,000 per account, plus each registered contract is insured up to $100,000.

 

 

Types of RRSPs

RRSP accounts can be setup with either one or two associated individuals:

 

Individual RRSP

An Individual RRSP is associated with only a single individual, termed an account holder. With Individual RRSPs, the account holder is also called a contributor, as only they contribute money to their RRSP.

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. The spouse can withdraw the funds, subject to tax, after a holding period. A spousal RRSP is a means of splitting income in retirement: By dividing investment properties between both spouses each spouse will receive half the income, and thus the marginal tax rate will be lower than if one spouse earned all of the income.

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.

 

 

 

Deposit Insurance: All credit union deposits are insured by DICO up to $100,000 per account, plus each registered contract is insured up to $100,000.

Heritage Savings & Credit Union Inc.
318 Merritt Ave
Chatham Ontario
N7M 3G1
tel: 519.351.0600
fax: 519.351.0660

Copyright © 2009 Heritage Savings Credit Union. All rights reserved.

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