I’m too young to open an RRSP. That’s for later in life.
Two questions for you: Are you working? Would you like to pay less tax on your income?
If you answered “yes” to both questions, then it’s a very good idea to open an RRSP (Registered Retirement Savings Plan) – even at a younger age. Here’s why.
RRSP contributions can lower the amount of tax you pay
When you complete your tax return, you can claim your RRSP contribution as a deduction, which reduces the tax you pay. If your income is lower one year, you can carry the deduction forward to a year when your income may be higher. Your RRSP becomes a useful tool to help you manage the amount of tax you pay on your income from year to year.
Given time, your money can grow within your RRSP – tax-free
Your RRSP contains investment tools such as GICs, stocks, mutual funds and bonds, which you can use to grow your money. As long as your money remains in your RRSP, any investment earnings are tax-free. The longer your money stays in your RRSP, the more time it has to grow - which is why it’s better to open an RRSP at a younger age.
Your RRSP can help you buy your first home or pay for your education
You can withdraw up to $25,000 for a down payment on your first home under the Home Buyers’ Plan, or take out up to $20,000 to help pay for education costs for you, your spouse or a common-law partner under the Lifelong Learning Plan (LLP). You won’t have to pay tax on these funds – as long as you pay the money back to your RRSP within a specified amount of time.
When you retire, you can receive regular payments at a lower tax bracket
Even though retirement may seem like a long time away, imagine the freedom of receiving regular payments after many years of saving. When it’s time to retire, you can convert your RRSP savings into a RRIF (Registered Retirement Income Fund) or an annuity, tax-free – and you will receive payments on an on-going basis. You will have to pay tax on these payments, but at that time you will be in a lower tax bracket, so you’ll be paying less.