Finances

5 reasons to invest in a RRSP

Attractive tax shelter

An RRSP is a tax shelter that allows you to reduce your taxable income concretely and directly. When you know that at least 30% of the amount is returned as a deduction in your tax return and that the money remains yours, it is the most interesting tax deduction offered by governments. To determine the amount you can contribute, take a look at your latest Notice of Assessment from Revenue Canada.

Tax-free interests

If you keep your economies in a savings account, you will have to declare your interests as a taxable income. Of course you can also invest in a TFSA where you could save up to $5500 per year without taxes but if you intend to save for your retirement, you should invest in a RRSP, enjoy the tax shelter and save interests free of taxes until the moment when you will withdraw these amounts. When you will retire, your tax rate will be lower and the withholding tax will be lower as well.

Time flies

We are young and retirement seems very far away. Let’s get back on Earth and realize that time flies. We will soon be out of time to save money for retirement. Any amount invested in your twenties and thirties will have a much bigger impact than an amount invested in your forties, for example. Even if you only invest a few hundred dollars every year, these amounts will have years to grow.

Versatility

While its primary purpose is to provide retirement income, your RRSP can be used as a down payment on your first house or to return to school using the incentive plan (LLP).

Balance your retirement income

In case you decide to quit your job to stay at home with your children, you will stop contributing to a pension plan and even to the RRQ. The spouse can contribute to a RRSP for his wife, receive immediate deduction in his tax return and ensure a more balanced retirement income for his wife. You can contribute to your spouse’s RRSP at all times if you respect the limits set by the Notice of Assessment sent by Revenue Canada.

For more information, consult Revenue Canada.


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