5 tips to make the most of your RRSP

5 tips to make the most of your RRSP

RRSP refers to the “Registered Retirement Savings Plan.” It is retirement planning that defers tax payments until you withdraw the savings down the li

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RRSP refers to the “Registered Retirement Savings Plan.” It is retirement planning that defers tax payments until you withdraw the savings down the line. If you want to make the most of RRSP, read the tips below in addition to other guidelines provided by your financial advisor.

1. Set Retirement Goals

RRSP is long-term planning or investment that reduces your present tax burden. However, to maximize the benefits it offers, your need to determine the lifestyle you desire after retirement. You should contact a financial advisor to help you have clarity of purpose and goals regarding RRSP. 

2. Early Investment Attracts Compound Growth

It will be best to start investing in RRSP as soon as possible to benefit from compound growth. Also, your money will enjoy long time protection from tax while it grows until you retire. 

3. Tax Return Reinvestment

Keep in mind that RRSP is not tax-free but only tax-deferred. Certainly, you will have a tax refund. However, it would be great to reinvest your tax refund instead of spending it. Tax refund reinvestment will result in a long-term benefit. 

4. Save Now, Pay Tax Later

Deferred taxation is one of the benefits of RRSP that is why your financial advisor will likely mention it when guiding you through suitable retirement programs you can invest in. Instead of deducting the tax now when you foresee an increase in your taxable income, that will undoubtedly increase your tax, postpone claiming deductions for a year to enjoy a higher htax refund. 

5. Create Withdrawal Strategies

Your RRSP becomes mature as you reach age 71. This makes it mandatory to convert your RRSP into an RRIF – the Registered Retirement Income Fund, a lump sum, payout, or an annuity by the year-end when you become 71 years old. The RRIF minimum withdrawal begins the following year after the RRIF is established. 

Meanwhile, you can seek a financial advisor’s advice regarding the right way to withdraw your RRSP. 

Takeaway  

The tips above will help you maximize the potential of RRSP. Contact an experienced financial advisor to guide you through starting the program soon enough the get the best results you can imagine.