IS an RRSP RIGHT FOR YOU? RRSP Pros and Cons

IS an RRSP RIGHT FOR YOU?

A big reason for opening an RRSP is to take advantage of the tax benefits it provides. The funds you contribute will not be taxed as income until they are withdrawn (ideally when you retire and, in a lower tax bracket). Income that is earned within the RRSP accumulates tax-free. Another major benefit of RRSPs is that you receive tax credits for the amount you contribute (up to a limit). However, is RRSP right for you?

RRSPs make sense in a variety of scenarios; First, contributing to an RRSP is a structured way to actively save for your retirement. Since the early withdrawal penalties are so stiff, you may be less tempted to borrow from your RRSP for purchases other than retirement, buying a home and paying for your education. Besides, RRSPs are tax-deferred. Therefore, it makes sense to contribute to one during your peak earning years when you’re in a higher tax bracket, if you expect to be in a lower tax bracket when you retire. Young people just beginning their careers (who are likely in a lower tax bracket) still may want to open an RRSP as soon as possible. Starting out early means you can take advantage of your investments compounding over time.

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