An RRSP is similar to an account you open at your favourite bank. But unlike a typical savings account, an RRSP acts like a tax shelter that provides you with a powerful incentive to save money for your retirement years. You can open an RRSP at many financial institutions including: banks, trust companies, life insurance companies, credit unions, caisses populaires, mutual fund, and stock brokerage firms. But unlike a savings account, an RRSP is designed to hold a number of investments such as stocks, bonds, and other popular securities including mutual funds, segregated funds and GICs.

An RRSP is generally available to you if you have qualifying income. Once you deposit funds into an RRSP, any growth or income earned on the underlying investment will not be taxed until you withdraw that money. In addition, you can claim tax deductions for contributions you make to your RRSP. But since you received a tax deduction when you contributed funds to the RRSP and the funds accumulated on a tax-free basis, if you decide to withdraw those funds prior to the plan’s maturity, any amount withdrawn will be regarded as taxable income by the government and will be subject to tax in the calendar year you receive it. When you hold the RRSP until the plan matures, the money you’ve saved can be withdrawn as a lump sum. But if you decide to go this route, the money you withdraw will be regarded as income and taxed in the calendar year you receive it. This could trigger a large tax bill. There are alternatives, however. By using your accumulated savings to purchase a retirement annuity or open a registered retirement income fund (RRIF), you are able to delay the receipt of your funds, and consequently, continue to defer paying tax on the savings remaining in the plan.

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