A Registered Retirement Savings Plan or RRSP is an account for holding savings and investment assets under the Canadian Income Tax Act. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Income Tax Act. Rules determine the maximum contributions, the timing of contributions, the claiming of the contribution tax credit, the assets allowed, and the eventual conversion to a RRIF (Registered Retirement Income Fund) in retirement. MWFS can offer access to RRSP's in the form of guaranteed investment certificates (GICs) and segregated funds.

 

Types of RRSPs

RRSP accounts can be setup with either one or two associated individuals:

 

INDIVIDUAL RRSP

An individual RRSP is associated with only a single individual, termed an account holder. With an individual RRSP the account holder is also called a contributor, as only they contribute money to their RRSP.

 

SPOUSAL RRSP

A Spousal RRSP allows a higher earner, termed a spousal contributor to contribute to an RRSP in the spouse's name. In this case it is the spouse who is the account holder. The spouse can withdraw the funds, after a holding period. A spousal RRSP is a means of splitting income in retirement. By dividing investment properties between both spouses each spouse will receive half the income, and as a result the marginal tax rate will be lower than if one spouse earned all of the income.

 

Group RRSP

In a group RRSP the employer arranges for employees to make contributions as they wish through a schedule of regular payroll deductions. The employee can decide the size of contribution per year and the employer will deduct an amount accordingly and submit it to the investment manager selected to administer the group account. The contribution is then deposited into the employee’s individual account and invested as specified. The primary difference with a group plan is that the contributor realizes the tax savings immediately, instead of having to wait until the end of the tax year.

 

Contributing

A RRSP deduction limit is the maximum amount of RRSP contributions that can be claimed on a tax return for a given tax year.

 

A deduction limit is calculated as the unused deduction limit from the prior year, plus 18% of a person's earned income from the previous calendar year up to a specified maximum, less any pension adjustment (PA) and past service pension adjustment (PSPA), plus pension adjustment reversals (PAR).