An RRSP is good for much more than retirement! Let’s set the record straight and correct any misconceptions that might be stopping you from making the most of this saving vehicle.
1. An RRSP can only be used for retirement
Wrong. You can also use an RRSP to buy your first home or finance further education. The Home Buyers’ Plan (HBP) helps you buy your first home by allowing you to withdraw up to $60,000 from your RRSP tax-free. The Lifelong Learning Plan (LLP) is a great way for you or your spouse to finance full-time education or training by borrowing up to $20,000 from your RRSP tax-free.
2. I’ve made my RRSP contribution—the money’s been invested
Not exactly. An RRSP is like a piggy bank you contribute to that rewards you with tax deductions. And you can grow that money by choosing an investment that meets your needs, based on your investor profile, risk tolerance and investment period. There are many types of investments available; an advisor can recommend the right ones for you that will help you grow your savings and returns tax-free. Put time on your side.
3. The markets are so volatile, it’s not worth it to open an RRSP
Wrong. The main advantage of RRSPs is that contributions are tax-deductible. You can take this money and invest it in any number of investment products (like term savings, guaranteed investment certificates, market-linked guaranteed investments, mutual funds or stocks).
You can choose the best products for you and diversify your RRSP portfolio based on your risk tolerance and objectives. The longer your investment horizon, the more investment options you have, and potential returns are often higher. You can grow the money you contributed to your RRSP tax-free until you retire, and also save on your taxes.
4. Having an RRSP is pointless if I have to pay tax on it once I’m retired
Wrong. When you contribute, you get a tax deduction on your income, which means you’ll pay less tax for that year. And you don’t pay any taxes until you make withdrawals from the RRSP. Generally, your income will be lower than when you made the contributions, so your tax rate will be lower. Most importantly, your money grows tax-free all those years.
As you get closer to retirement, talk to your advisor about reducing your tax impact with a solid RRSP withdrawal strategy.