What do you know about RRSPs?

RRSP EggHow much do you know about your finances? Looking at the savings side of your balance sheet, do you know what an RRSP is and its many uses for your current and future financial picture?

November marks Financial Literacy month, which presents an important opportunity to evaluate what you know and to determine areas for improvement.

Seriously. When it comes to managing your finances, knowledge is power.


An RRSP (Registered Retirement Savings Plan) is an often misunderstood investment option. Many people think that an RRSP itself is an investment. It’s not. It’s a tax sheltered “umbrella” where you can hold a number of different investments, like Mutual Funds, stocks, GICs (Guaranteed Investment Certificates) and a host of others.

The difference is that, in holding these investments in an RRSP, you are able to defer taxation until retirement, when you in theory are in a lower tax bracket, because you are earning less. Not only are you helping to boost your retirement savings for the long term, you are giving yourself a tax break in the short term (RRSP contributions are tax-deductible).

You can still hold all of these investments outside of an RRSP, but you’ll be taxed at your usual rate.

Here is a good link with up-to-date info about the rules surrounding RRSP contribution.

Not just for retirement

While the RRSP is certainly geared to help fund or subsidize retirement income, there are other uses available in your immediate life.

For instance, did you know that you are allowed to withdraw funds from your RRSP as a First Time Homebuyer to use as your down payment(up to $25,000 in a calendar year)? The deal is that you have to agree to repay what you’ve taken out back into your RRSP over a 15 year period.

Heading back to School?

The government will also permit you to withdraw funds to pay for your education through the LLP (Lifelong Learning Plan), up to an annual limit of $10,000, with a total maximum of $20,000.