Benefits of RRSP investing

 

While most individuals recognize the benefits of investing in a Retirement Savings Plan (RRSP), many do not exploit its unique advantages to their fullest potential.

 

These are the three primary benefits of investing in an RRSP:​

 

Tax savings

 

Contributions to an RRSP are deductible for tax purposes within certain prescribed limits. In the year a contribution is made to an RRSP you can choose to deduct the contribution from your taxable income. This deduction reduces the amount of taxable income and thus the tax payable.

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Tax-deferred compounding

 

The most significant opportunity offered by an RRSP is the tax-deferred compounding of income earned within the RRSP. All income earned within the RRSP accumulates tax-free until withdrawn.

 

Income splitting

 

Income-splitting strategies between spouses can provide significant tax savings. One of the most simplistic, yet effective methods of income splitting between spouses is achieved by contributing to a spousal RRSP. The objective of this strategy is to provide both spouses with similar retirement incomes and thus similar income tax rates in retirement.