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Types of RRSPs

An RRSP is a great option if you’re saving for retirement. In some cases, you may be able to contribute to more than one because there are different types of RRSPs.

Here’s a rundown of the three kinds of RRSP available:

Individual RRSP

This is the most common type of RRSP. It’s registered in your name and the tax benefits belong to you. Most financial institutions offer RRSPs that hold cash, GICs, or mutual funds. Or you can get a self-directed RRSP, which is also an individual RRSP, from a discount brokerage.

A self-directed RRSP gives you the ability to hold a greater variety of investments in the account. You can hold cash, GICs, and mutual funds as well as stocks, bonds, and exchange-traded funds (ETFs). You also have access to other companies’ investment products, which aren’t usually available for purchase with a regular individual RRSP. There’s usually an annual fee associated with a self-directed RRSP unless you have a certain amount of assets in your account (usually $15,000 to $25,000). There’s a fee to buy or sell stocks, but some brokers will let you trade ETFs for free.

Group RRSP

Many employers offer group RRSPs for their workers to help them save for retirement. While there aren’t as many investment options, the management fees on mutual funds are usually lower than those offered to you in an individual RRSP.

There are many other benefits of group RRSPs:

  • The minimum deposit amount is smaller than an individual RRSP;
  • Your RRSP contribution is made each time you get paid with pre-tax dollars instead of after-tax dollars; and
  • Your employer may match all or a portion of your contribution amount—that’s free money.

Spousal RRSP

You can contribute to an RRSP registered in the name of your spouse or common-law partner and claim the tax deduction. A contribution will reduce your own RRSP limit but it won’t affect how much he or she can put into their RRSP. Contributions to both plans are still subject to your RRSP deduction limit.

The one big advantage is he or she will pay tax at a lower rate than you when making an RRSP withdrawal or at retirement. If you’re in a higher tax bracket or expect to be in one in retirement, this means the total amount of tax you’ll pay as a couple will be lower.

The bottom line

Each type of RRSP has a different benefit. If you’re able to contribute to more than one, you’ll be able to lower your tax bill and have more money for retirement.

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