If you’re confused about what an RRSP is, why you should make an RRSP contribution, or just want to know when the RRSP deadline is for 2024, this article is here to help answer these questions for you.
What is an RRSP?
In the simplest terms, an RRSP is a Registered Retirement Savings Plan. It allows you to reduce the amount of taxable income you claim by making a contribution before the deadline. The RRSP deadline this year is February 29, 2024.
RELATED: Child tax benefit and other tax breaks for parents in Canada
Along with reducing your amount of taxable income another benefit of an RRSP is that your investments can grow tax-deferred. This means you won’t have to pay taxes on any gains or income generated by your RRSP as long as they stay in the plan.
Limits to RRSP contributions
There are RRSP deduction limits that vary per person. These RRSP limits can be found on your notice of assessment from the previous tax year or by logging into the Canada Revenue Agency (CRA) website.
Because an RRSP contribution helps lower your amount of taxable income this could also lead to a higher tax refund, which could then be reinvested into your RRSP or to put towards paying down debt.
An RRSP is meant for long-term retirement savings and accessing the money in an RRSP account is more difficult than a regular savings account or a Tax-Free Savings Account (TFSA). This also means that when you withdraw money from an RRSP you are normally taxed on it.
Difference between an RRSP and a TFSA
Unlike an RRSP, a TFSA doesn’t deduct money from your taxable income. It instead allows you to earn interest and withdraw from your account tax-free. There are yearly contribution limits to a TFSA, which is $7,000 for 2024 plus any unused contribution from previous years.
Setting up an RRSP
If you don’t already have an RRSP account most banks and financial institutions in Canada offer them, including RBC, Scotiabank, WealthSimple and Tangerine. Set one up today to invest before the February 29 deadline to benefit on your tax return this year.
This post is for informational purposes only and is not financial advice. We recommend speaking to a financial advisor to get a better understanding of your money needs.
Photo by Kelly Sikkema on Unsplash
