Registered Retirement Savings Plans (RRSPs) are investment accounts that provide tax benefits for retirement savings in Canada.
RRSPs refer to a provision in the Income Tax Act that allows a person to shelter financial property from taxes. Examples of financial property that can be held within an RRSP are: cash, Segregated Funds, stocks, bonds and Guaranteed Investment Certificates (GIC’s). You receive an income tax deduction with each investment which then grows tax-free. You only pay tax once you start to withdraw the funds.
When an inividual turns 71, he or she has three options, withdraw all of their funds and pay the taxes immediately, or convert their RRSP into an Annuity or a Registered Retirement income Fund (RRIF). A RRIF allows the investor to continue sheltering the money from taxes but they must withdraw a minimum specifc amount each year following the creation of the RRIF.