An RRSP is a great way to save for retirement while also helping to save on taxes now and in the future. Canadians can defer federal and provincial income tax until retirement when their tax rates are likely to be much lower. Any interest, dividends or capital gains earned inside an RRSP are also allowed to grow tax-free. An RRSP is not a specific investment. It is more like taking a selection of investments and setting them aside for retirement. At retirement the accumulated savings is turned into income.

A retirement savings plan is not officially registered until approval is received from the registered plans department of Canada Revenue Agency (Taxation). Sun Life Financial submits lists of new RRSPs and a formal application form “Application for Registration” to Canada Revenue Agency (Taxation) at least twice a year.

Who can contribute to an RRSP?
Anyone 71 years of age or younger who reports earned income for tax purposes can contribute to an RRSP. Even children are allowed to have RRSPs, as long as they meet the earned income requirement.

A spousal RRSP is an RRSP registered in the name of the spouse (including a common-law spouse). For some couples this strategy can save significant taxes in retirement. The idea is to build two pools of savings that will produce two similar income streams during retirement.

Investments that can be used
RRSP investments can be held in guaranteed products such as accumulation annuities or GICs or in market-based products like mutual funds and segregated funds. Investments from around the world can be chosen, allowing for opportunities not available in Canada.

What limitations are there?
The federal government limits how much can be contributed to an RRSP. The annual contribution for 2007 can not exceed 18% of the income earned the previous year or $19,000, whichever is less.
Maximum annual RRSP contribution limits

Year Contribution limit
2005   $16,500
2006   $18,000
2007   $19,000
2008   $20,000
2009   $21,000
2010   $22,000

(This information is provided by Tess Newton Financial Services, representing Sun Life Financial. Tess is also a Commissioner for Oaths in the Province of Manitoba.)