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RRSPs |
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A Registered Retirement Savings Plans (RRSP)
is a savings plan registered with Revenue
Canada to assist and encourage Canadians to
save for their own retirement. RRSPs are set
up so that an individual holds a variety of
investments which are sheltered from tax.
The purpose of using this vehicle is to provide
a retirement income.
Two major advantages to contributing to
an RRSP are:
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Contributions are
deductible from current income for tax
purposes (up to a certain limit.) |
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Investment income
sheltered within the plan accrues tax
free, until the individual retires or
makes a claim. |
Types of RRSPs are:
Basic RRSP
One of the most common types of RRSP are those
typically offered by financial institutions.
In this type of RRSP, individuals normally
make direct contributions with the institution
that holds the investments.
Group RRSP
This type of RRSP is usually sponsored by
a larger employer, union or professional association,
and managed by a financial institution, insurance
company or securities dealer.
Self-Directed RRSP
An individual with this type of RRSP establishes
a brokerage account with an investment dealer/broker
through which he buys and sells shares and
other qualified assets.
Since RRSP contributions are tax deductible,
they can greatly reduce the amount of income
tax paid out each year. However, The Income
Tax Act places certain limits on the contributions
to an RRSP deductible from current income
for tax purposes.
The current contribution limit is set at 18%
of earned income in the previous year, up
to the maximums shown in the table below.
Earned income normally includes net income
earned from employment, business and rental
income on property owned.
| Year |
Maximum
RRSP contribution limits |
| 1991 |
11,500 |
| 1992 |
12,500 |
| 1993 |
12,500 |
| 1994 |
13,500 |
| 1995 |
14,500 |
| 1996-2003 |
13,500 |
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