Registered Retirement Savings Plan (RRSP)
Save for retirement with an RRSP from iA Clarington
There are many ways to invest for retirement, but a Registered Retirement Savings Plan (RRSP) is often the first choice because of the tax advantages it offers.
What is an RRSP?
It’s a registered account that can be used for holding investments specifically for retirement. “Registered” means that the account conforms with tax rules administered by Canada Revenue Agency (CRA). These rules determine how much you can contribute each year, what you can invest in, when you must terminate your RRSP and the implications of taking money out of your account.
Why choose an RRSP?
RRSPs have two key advantages:
- Any contributions you make up to your contribution limit are tax-deductible and may reduce the income tax you pay in the year
- You won’t pay tax on your contributions or any investment growth until you withdraw money from your RRSP
You can open an RRSP at any age as long as you earned income in the previous year. You can contribute up to 18% of the income you earned in the previous year (up to a maximum of $26,500 for the 2019 tax year and $27,230 for the 2020 tax year) less any contributions to a registered pension plan that you or your employer made during the preceding year. Any unused contribution room can be carried forward.
Trying to time the markets is difficult, if not impossible. Many advisors recommend staying invested and investing regularly through the market’s ups and downs instead of reacting to short-term market volatility.
One way to invest regularly is to set up pre-authorized contributions (also known as PACs), so your financial institution can automatically contribute a set amount each month to your RRSP.
RRSPs can hold many types of investments, from low-risk Guaranteed Investment Certificates (GICs) to higher-risk, and potentially higher-return equities.
You can reduce risk and enhance your long-term return potential by choosing a portfolio of well-diversified investments. Your financial advisor can help you select the iA Clarington funds that are best suited to your needs, risk tolerance and time horizon.