TYPES OF RRSPs
Want to save for retirement but don't know which type of RRSP to contribute to? Keep on reading to learn more about which RRSP is the best fit for you!
In this article, we will focus on three types of RRSPs:
Self-Directed RRSP
Regular RRSP (Individual and Group RRSPs)
Spousal RRSP
SELF-DIRECTED RRSP
A “self-directed RRSP” is a retirement savings plan that provides you with freedom to build and manage your own investment portfolio, by buying and selling a wide variety of different types of investments. You can purchase conservative investments such as CSBs, Government of Canada and provincial T-Bills, and GICs which are issued by a variety of financial institutions.
You should consider opening a self-directed RRSP only if
You have the time and knowledge to manage and own investments, or have access to professional investment advice
You have a large deposit based RRSP
You already hold investment securities (e.g., stocks, bonds, etc.)
Note: Annual administration fees for a self-directed RRSP are not deductible for tax purposes.
Benefits of a Self-Directed RRSP
Self-directed RRSPs are flexible
You can easily adjust your RRSP investment strategy according to the changes in the economy or your personal circumstances. This can include new investments which become more attractive, or if your personal circumstances change
Self-directed RRSPs have a wide range of eligible investment choices
Based on your investment objectives and personal risk tolerance, you can have a variety of combinations of investment choices like qualifying bonds, GICs, mutual funds, common and preferred shares, and/or any foreign content investments. Consolidating all of your RRSPs into one self-directed plan gives you the opportunity to maximize foreign investment
REGULAR RRSP
A "regular RRSP" refers to a plan where contributions are made on your own behalf; however, the funds are not managed by you. Instead, financial institutions or investment consultants and planners manage the funds and investments within the plan.
For more information on RRSPs, follow this link to the CRA's website: Read More
SPOUSAL RRSP
RRSP contributions made to a spouse's RRSP plan are known as “spousal RRSP contributions”.This is different from a regular RRSP as a spousal plan can be set up to split income for the purpose of saving on taxes in the retirement years.
Benefits of Spousal RRSPs
Spousal RRSPs allow for the spouse with little or no income to save for retirement, as the contributor is usually the higher income earner. The objective of spousal RRSPs is to shift RRSP assets into the hands of a lower income earner; so, at retirement, the income from the plan is taxed at a lower marginal rate, resulting in tax savings
This is effective for tax purposes as the contributor will be able to have a deduction from their income, while his/her spouse will be an annuitant
Criteria for Contributing to a Spousal RRSP
The spousal contributor is allowed to contribute to the plan, all or in part, of their own contribution eligibility amount
The total contribution to the regular RRSP or spousal plan cannot exceed the contribution limit of the contributor. This is based on the contributor's deduction limit which is used as a basis for calculating contributions to their own plan
The official receipt of the RRSP should mention the names of both the contributor and the annuitant
If the contributor and the annuitant are the same individual, the plan is known as a regular RRSP. If the contributor and the annuitant are not the same individual, the plan is called a spousal RRSP
You work hard for your money! Plan ahead to make the most of your retirement years!
If you would like to learn more about how you can contribute to a spousal RRSP, click/copy the following link: Read More
