RRSPs are designed to help you save for retirement:
- The money you invest in your RRSP is tax-deductible (up to your personal deduction limit), and your investment earnings grow on a tax-deferred basis.
- You can technically withdraw funds at any time. However, withdrawals are taxed as regular income in the year they are made, (except when made under the Homebuyer’s Plan or Lifelong Learning Plan programs).
- When you retire, or no later than the end of the year in which you turn 71, you can start drawing your savings and supplement your retirement income by converting your RRSP to a Registered Retirement Income Fund (RRIF) or other income option. And since you will likely be in a lower tax bracket when you retire, you’ll likely pay less tax on the withdrawals than you would today.