Four letters Canadians can make use of- RRSP

It is that time of year for Canadians who are looking at ways for paying less tax (legally) and at the same time put something aside for their eventual retirement. Well, really the deadline is March 1, but everyone is and should be making their plans for it now. So enter the RRSP or Registered Retirement Savings Plan, which  is famous (for Canadians) as a government registered plan where you can take money that would otherwise be taxed to death and put it in a savings plan that will not only be allowed remain tax free but also accumulate interest free of tax. It will generally be taxed when you withdraw it but at least you’re in control of when that will happen. This means that if you fall on a year where for one reason or another you are being taxed at a lower rate, usually because you earned less in that particular year and thus, are taxed at a lower rate, then you can withdraw some of that saved RRSP money and pay a lower tax than you would if you did not have that plan and paid the tax on it in years when you made more and were at a higher tax bracket. The annual limits for RRSP contributions, not including carrying over unused limits from previous years that can be carried over to this year is available here, by Canada’s largest bank, RBC.

For Americans who may be reading this post, there is a program in the US that is similar to the RRSP in Canada, it is called the Individual Retirement Account or IRA. In the US there is also a plan called the 401(k). They share many common traits with the RRSP, but I am not an expert on the US based plans at this time so I would prefer not to provide advice on it.

So, for Canadians who are frustrated at the amount of tax they need to pay or for those who have completely forgot or have procrastinated on doing their taxes and are scrambling now, do not forgot to utilize the RRSP to its full potential, otherwise you will be over paying the government and the thought of that alone should be enough to send chills down your spine. Make sure you speak to your accountant about this if he/she has not brought it up with you. An accountant will definitely know how best to utilize it and if not then, that is your cue to look for a new accountant.