Five reasons RRSPs should be part of your investment strategy.
One of the most powerful tools available in Canada for planning for your financial future is a Registered Retirement Savings Plan (RRSP). Whether you’re starting your career, nearing retirement, or somewhere in between, an RRSP offers numerous benefits that can help you build wealth for the days ahead.
If you’re still undecided about opening an RRSP, the following five compelling reasons may help:
1. Contributions are tax deductible
The money you put into an RRSP is tax-deductible, reducing your annual taxable income. This contribution can result in a significant tax refund, depending on how much you contribute and your marginal tax rate.
2. Your savings grow for use during retirement
One of the biggest advantages of an RRSP is the ability to grow your investments tax-deferred. This means the money you contribute can grow without being taxed until you withdraw it from your RRSP, typically in retirement. Since the goal of an RRSP is to save for retirement, this also allows your investments to compound over time, leading to more substantial growth.
3. You can borrow from your RRSP to buy your first home
Under the Home Buyers’ Plan (HBP), you can borrow up to $25,000 from your RRSP for a down payment on your first home. Bonus: If you pay the money back within the specified period of time, you won’t pay any tax on these withdrawals.
4. A spousal RRSP can reduce your combined tax burden
If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. The result is that retirement income is more equally split between the two of you — which may reduce the total amount of tax you pay.
5. Retirement security
The primary purpose of an RRSP is to help Canadians save for retirement. By contributing regularly to an RRSP, you build a nest egg that can provide financial security in your later years. Retirement may seem far off when you’re in your 20s or 30s, but the earlier you start saving, the easier it will be to reach your retirement goals. Even if you’re in your 40s or 50s, it’s never too late to start contributing. You can still benefit from tax deductions and compound growth, which will help bolster your savings for retirement.
In summary, opening an RRSP can provide significant tax benefits, help you save for retirement, and offer flexible investment options for your portfolio. At WFCU Credit Union and its divisions, our team of skilled representatives are here to help you maximize your RRSP contributions regardless of where you are on your financial journey. Eligible deposits in registered accounts have unlimited coverage through the Financial Services Regulatory Authority (FSRA).
Jil Scott, Manager, Sales & Services at WFCU Credit Union
