14 Sep Retirement Savings Plans: More than just a tax break
Usually we connect RSP’s with an immediate tax deduction, but the long-term benefits of accumulating assets in a tax-sheltered plan may be just as great as the short-term deduction.
Your annual RSP contribution is based on your previous year’s earned income minus a pension adjustment for any benefits you accumulated in a pension plan or deferred profit sharing plan from your employer. Your RSP deduction limit is listed on the Revenue Canada Notice of Assessment you received following your last year’s tax return.
When you contribute to an RSP you can claim an equivalent deduction from your income before calculating your tax payable.This immediate deduction is very worthwhile, especially if you use the tax saved to make an RSP contribution for next year or pay off after-tax debt such as your mortgage.
However, RSP investments also accumulate within the plan tax-free. The longer your money stays sheltered from the taxman, the greater the earning power of your investment. The most powerful benefit of an RSP is this tax-free accumulation.
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