There are so many plans that people can opt for to secure their future. RRSP is one of those plans. It is a registered retirement savings plan that is created to help you save some money for your retirement. This savings plan for retirement also involves tax benefits that can allow you to retire with ease. Also, people who do income tax returns and have shown some income can easily open and contribute to an RRSP. 

There are various places where an individual can opt to open an RRSP, such as banks or trust companies, mutual fund companies, life insurance companies, credit unions, investment firms that are also self-directed RRSPs, and much more. This blog will help you understand the RRSP plan thoroughly and allow you to get one. 

What are the types of RRSPs? 

RRSPs are mainly of three types, which you should know to look for in your retirement plan. 

Individual RRSP: This RRSP type is considered or registered in your name. Also, the RRSP investment and the major tax benefits linked with it are going to belong to you. The decision to build or manage the RRSP investment portfolio on your own with the help of a self-directed RRSP, or it is always better to join hands with an advisor. 

Spousal RRSP: A spousal RRSP is all about registering it in your spouse’s name or partner in a common-law relationship. The investment in it is owned by them, but it is you who is going to contribute. The tax deduction will be there for contributions made to spousal RRSP.  This is the best way to split the income evenly between you and your partner during the time of retirement. In other words, the paid and combined income tax as a couple can be lower in comparison to a single RRSP. This is the best option if you are earning higher than your spouse or if you have a pension plan and your spouse does not have one. 

The qualification requirements for spousal RRSP are: 

• For around 12 months, the couples need to live together.
• You have a child by birth or via the adoption process. 
• You have custody and support the child of your partner from your past relationship. 

If there is a situation where the money is taken out by your spouse, which was contributed by you: 

• The tax needs to be paid on the withdrawal amount, and this needs to be done within three years. 
• After three years from the contribution date, your spouse needs to pay the tax on the withdrawal amount. 

If there is a situation where your relationship ends, then: 

• In case you are married, then the spouses need to equally divide the assets, 
• If you are under common law, then try getting a joint agreement, which will help in covering this situation. In this case, assets might not be needed to be divided equally. 

Spousal RRSP is beneficial to equalized retirement income and reduces tax. However, it can be of no use if the income of your spouse is going to be equal to yours around the retirement time. 

Group RRSP: There are some employers who provide a group RRSP so that the employees can easily save for retirement. In simple words, an individual RRSP is opened, but the contribution is made via the employer. The RRSPs for every employee are done at one financial institution. It is carried out as: 

• The plan contributions are deducted automatically from the pay, and it is added to the contributions. 
• It is the employer that pays for the opening costs as well as plan management. 
• The investment options are limited depending on the location of the group RRSP. 
• The rules related to when and the amount of money that can be taken out depend on the employer. 

What are the benefits of using RRSP for retirement savings? 

There are a lot of benefits of using an RRSP for your retirement savings, such as: 

• The contributions are deductible from tax: The RRSP contributions can minimize the taxable income. This leads to larger funds or you owe less during tax time. Thus, tax relief can be experienced by RRSP contribution deduction each year from income. 
• The savings can grow tax-free while being in the plan: Any interest or investment earnings that are earned with the help of RRSP money are not going to be taxed if they remain in the plan.
• Deferral of taxes: RRSP contributions are done with the help of pre-tax dollars, which means you do not need to pay any tax on that money. This is until you decide to withdraw the money from the plan. This involves investment earnings as well as contributions. 
• RRSP conversion is possible for regular payments: RRSP savings, tax-free, can be transferred to RRIF when you decide to retire. However, you need to pay tax on the payments that you are going to receive every year, but you are going to pay less tax. 
• Spousal RRSP can lead to a reduction in the combined tax burden: If your earnings are more than your spouse ‘s, then you can opt for tax-free savings by opting for a spousal RRSP. Later, retirement income will be divided equally. It is beneficial in minimising the total tax amount. 
• Some amount can be borrowed from RRSP: There is a possibility to take some amount of money for the down payment under the Home Buyers Plan. Also, this can be possible with education costs under the LLP plan or the lifelong learning plan. There is no need to pay the tax on these withdrawals if you are giving it back within a certain time. 

How does an RRSP work? 

• Have a conversation with an RRSP agent to open it with an appropriate investment. This depends on your investment goals and the tolerance for risks. 
• It is essential to understand the contributions that are appropriate according to your situation so that you do not go overboard. 
• The annual contributions can be deducted. This is done from the taxable income and reduces the total tax bill. 
• The investment growth leads to a tax-free situation. 
• If there is a need for money, then it can be accessed, but the withdrawals are going to be taxable. 
• There is a possibility to withdraw tax-free to fulfill a first home buy situation or complete a spouse’s education. This is possible when you qualify. 
• When there is a time to retire or when you turn 71, then the RRSP plan can be converted to RRIF with a minimum annual withdrawal. Alternatively, you can get an income annuity. 

Conclusion 

For some people, savings can be a difficult topic or situation to handle. But to secure your retirement time, it is essential to indulge in RRSP plans. The above-mentioned quick guide will help you in many ways and will not limit you. Also, if you are still confused, then getting help from an RRSP agent can be a smart move. Insure Horizons can provide you with all the help that you need with RRSP. Our agents are skilled and work in your favour. Thus, getting our plan for your RRSP can allow you to enjoy the best benefits with so much ease.