At first glance, the concept of RRSPs — including what they are and the benefits they offer — can be kind of hard to understand.
Maybe you don't know how much you should contribute each year, or you’re unsure which of your goals you can use your RRSP to fund.
Don't worry, Desjardins can answer all your questions and give you some advice on this topic (among countless others).
A registered retirement savings plan (RRSP) is a type of tax-free investment that allows you to save money for retirement while decreasing your taxable income.
Coupled with good financial habits, an RRSP willl help you achieve your goals and enjoy a comfortable retirement.
Here are six benefits to investing a bit each year in an RRSP.
You Can Invest Tax Free
A tax-free RRSP investment is essentially an investment in your goals and retirement. The income you generate isn't taxed until you make withdrawals, so you'll be able to maximize your long-term investment.
And because tax rates are normally lower when you retire than when you're in the workforce, you'll likely pay less tax when you’re ready to withdraw your money.
You'll Reduce Your Taxable Income
When you contribute to an RRSP, you decrease your taxable income. That means you'll pay less tax and, if you're eligible, maximize certain government benefits.
You can also add a variety of investment products to your RRSP, including term savings, market-linked guaranteed investments and mutual funds.
It Makes It Easier To Go Back To School
Tim Gouw | UnsplashDid you know that you can use your RRSP to fund your education? The Lifelong Learning Plan (LLP) allows you to withdraw up to $20,000 from your RRSP over four years so that you can complete your degree or diploma.
The LLP is a government-funded program that doesn't require you to pay tax on the amount you take out. However, you do have to repay the amount within 10 years. Considering how expensive student life is, the LLP can be a huge help.
It Can Help You Buy Your First Home
Ever heard of the Home Buyers' Plan (HBP)? It's a government program that allows you to withdraw up to $35,000 from your RRSP — tax free — to use toward buying (or building) your dream home.
You just have to start paying back the amount two years after the withdrawal, but you have up to 15 years to repay the full amount. Plus, you won't be charged interest.
This plan is a simple and efficient way to help you buy your first place!
You Could Get Instant Tax Benefits
By contributing to your RRSP each year, you can minimize the taxes you owe — and maybe even get a tax refund. This amount is determined by a number of factors, such as your income, your family situation and the credits you're already entitled to.
If you make more than $38,000 a year and you've received government funding, such as the Canada Recovery Benefit (CRB), it's important that you plan to contribute a minimum amount to your RRSP.
Because this additional income wasn’t initially taxed, contributing to your RRSP can help decrease your taxable income, reducing the overall taxes you owe.
It Can Set You Up For A Stress-Free Retirement
If you think that retirement is super far away and that you have a lot of time to save up, you're not alone.
But there are a bunch of great tax benefits that come with having an RRSP, and it's never too early to develop positive financial habits.
To find out how much you can contribute this year, go to your Canada Revenue Agency account and look under "RRSP deduction limit."
Your maximum deduction amount is equivalent to your contribution room for 2021, which is 18% of your earned income from the previous year (up to a maximum of $27,830), plus any unused contribution room from the past.
It's important to check all of this before you make a contribution.
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This content is for general informational purposes only and does not constitute financial, investment, legal, tax, or accounting advice.
This article was originally published in French on Narcity Quebec.