RRSP – Registered Retirement Savings Plan
RRSP stands for Registered Retirement Savings Plan and is a Canadian retirement plan. RRSP contributions can be used to reduce Canadian contributor's income tax up to a certain limit. RRSP is one of the few tax shelters Canadian can use. Any income earned in the RRSP is exempt of tax until the RRSP account owner start drawing funds from it. You can contribute in RRSP until the age of 71.

The RRSP deduction limit depends on the contributor's earned income in the previous year, minus any pension adjustments. The RRSP deduction limit is %18 percent of the income of the contributor up to certain limit. For maximum deductible RRSP amount for 2007 has been set to $19,000 CAD. To find out what is your RRSP contribution limit, check the notice of assessment for your personal taxes you get from Revenue Canada every year. Revenue Canada allows carrying forward indefinitely any RRSP deductions you haven't used in the current tax year. If you have a contribution limit of $10,000 for tax year 2007 and you don't contribute it to your RRSP account during 2007 tax year, you can contribute this $10,000 in any of the following years on top of the allowed contributions for these years. Be careful not to contribute over your RRSP deduction contribution limit, because if you put over $2,000 than allowed you will be penalized.

Revenue Canada allows for spousal RRSP contribution, which means that you can contribute to an RRSP in your spouse's name. This is useful for high bracket earners as this way they can split the income coming from RRSP in their retirement years.

You can draw funds from your RRSP account without having to pay taxes on the withdrawals, if you do it under the Home Buyer's Plan. Under this plan you and your spouse are allowed to withdraw up to $20,000 CAD from your respective RRSPs for buying your first home. The money you withdraw under the Home Buyer's Plan has to be repaid back in the next 15 years (skipping the first one following withdrawal).

Many Canadian Banks offer self-direct RRSP account, which is simply a brokerage account through which you can buy and sell mutual funds, company shares, bonds and anything that is allowed to be held in RRSP.

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