The benefits of a Registered Retirement Savings Plan in Mississauga
Putting away money in a Registered Retirement Savings Plan can be more than getting a tax break and saving for your golden years. RRSP can be an interesting option for young families as it offers reduced taxable income. You can contribute up to 18% of your earned income towards RRSP in a given year and accumulate unused contribution room year after year. The return that grows I completely tax-free, and you can also show a lower annual income when you are filing for taxes as when you won’t have to disclose the amount you are contributing towards your RRSP. In short, you invest money in them, get a tax refund, and your money also grows tax-free within them, and only when you withdraw the funds do they become part of your taxable income. What’s not to like?
The advantages of RRSP
- Reducing your taxable income: Each RRSP contribution reduces your taxable income. You should know that the money held in your RRSP- both the amount that you contribute and your investment gains- are all sheltered from taxes until you withdraw. When you withdraw RRSP funds from the account, you will likely be in a lower tax bracket, and you will have to pay less tax.
- Unused contribution space: If you are not able to max out your RRSP contributions in a worry, it will be carried forward to the next. Meaning, that you can contribute extra in the following calendar year without worrying about paying the penalty.
- Earn compound interest: If you start your RRSP account early and make regular contributions, you can reap the benefits of compound interest. As your initial investments and interest payments remain within the plan, they are reinvested, and your rate of return is applied to a growing balance that will allow your investment to grow quickly over time.
- Protected savings: In an unfortunate event, if you declare bankruptcy, your RRSP funds, alongside RRIF and RDSP funds, will be safe from creditors. However, if you make any contribution within a year of declaring bankruptcy, those funds will not be protected.
- Several investment options: Consider RRSP as an envelope that hold several investment products, and these can be in the form of stocks, mutual funds, bonds, or GICs-just to name a few. If you are strategic about where to put your contributions, you should know that all dividends, capital gains, and interest generated in the account are sheltered from tax.
- Converting to RRIF: Your RRSP reaches maturity on the 31st of December of the year you turn 71, and after that, you are required to withdraw from this account. At this time, you can either take a lump sum amount (which will be taxable) or convert your RRSP to an RRIF, which can create a steady source of monthly income for you at a lower income tax.
RRSPs can be taken as a type of tax-free savings account that is focused on saving for your retirement years. It comes with several benefits that you can take advantage of and maintain your lifestyle standard when you finally decide not to go to the office anymore. If you need help with the application, hire professional Registered Retirement Savings Plan investment brokers. Rupinder Rai is an expert you can contact if you live in or around Mississauga. She can help you with Tax-Free Savings accounts too.