RRSPs: What you need to know

Whether through your employer, family, or friends, you've probably heard about the registered retirement savings plan (RRSP). But what exactly is it and how does it work? Here's what you need to know about RRSPs and how they can make your money work for you.

What is an RRSP?

An RRSP is a financial tool that provides an incentive to save for retirement. It can also be used for other big projects, such as buying a home through the Home Buyers' Plan (HBP)Attention, this link will open a new tab. or going back to school through the Lifelong Learning Plan (LLP)Attention, this link will open a new tab..

Defer taxes

An RRSP lets you defer the tax you pay on your income. The advantage is that your current tax rate is probably higher than what it will be when you retire. So, by deferring the taxes, you should end up with a lower tax bill than what you received as a deduction when you contributed. In the meantime, the money you invest in your RRSP will grow tax-free.

Make your money work for you

Once your money is in an RRSP, it can generate tax-sheltered profits. For example, if you contribute $1,000 a year over 20 years, you will have invested a total of $20,000.
 

Let's say you have a constant return of 3 percent per year during this period; this interest will be added to the initial amount and grow. After 20 years, you would have $26,870 in your RRSP—$6,870 more than the amount you initially invested. To find out how much your personal future investments could be worth, use the Fonds de solidarité FTQ's future value of investments calculator.

Contribute to your spouse's RRSP

You can also contribute to your spouse's RRSP. Depending on your situation, this may be a worthwhile retirement withdrawal strategy to pay less tax once you retire. If your income is much higher than your spouse's, your tax rate will likely be higher than theirs. With pension income splitting, you can distribute your retirement income and that of your spouse more evenly so as to reduce both your tax bills. You can do this by contributing to your lower-income spouse's RRSP.

 
Depending on your situation, contributing to an RRSP can pay dividends in terms of both the tax savings and the earnings on your investment. An RRSP can give you the means to achieve your dreams. While contributing early can generate more long-term benefits, there is no ideal age to start. You don't have to have large sums of money to invest—it's always advantageous to add a few dollars to your reserves. The Fonds de solidarité FTQ offers an automatic savings option with the RRSP+ that can help you put money aside and develop healthy savings habits as you manage your personal finances.

The Fonds de solidarité FTQ's shareholders will receive 15% in tax credits from the Québec government and 15% from the federal government. They are capped at $1,500 per fiscal year, which represents a $5,000 purchase of shares of the Fonds de solidarité FTQ.

Please read the prospectus before buying Fonds de solidarité FTQ shares. Copies of the prospectus may be obtained on the Website fondsftq.com, from a local representative or at the offices of the Fonds de solidarité FTQ. The shares of the Fonds de solidarité FTQ are not guaranteed, their value changes and past performance may not be repeated.
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FlexiFonds de solidarité FTQ Inc.
The units of the FlexiFonds funds are distributed solely in Québec by FlexiFonds de solidarité FTQ inc., a mutual fund dealer wholly owned by the Fonds de solidarité FTQ. FlexiFonds de solidarité FTQ inc. does not distribute the units of any other mutual funds. Management fees and other expenses may be associated with mutual fund investments. Please consult your advisor and read the prospectus and the fund facts documents before making an investment. The units of the FlexiFonds funds are not covered by the Canada Deposit Insurance Corporation nor any other government deposit insurer. The FlexiFonds funds are not guaranteed, their values change frequently, and past performance may not be repeated.