How are RRSPs taxed?
Registered Retirement Savings Plans (RRSPs) have special tax advantages in that your investments grow tax-free and your contributions are tax-deductible—meaning you get immediate tax relief by deducting your RRSP contributions from your income each year. Money you make on your RRSP investments are not taxed as long they remain in the plan. You only pay tax on your RRSP savings (both your investment earnings and contributions) when withdrawn. If you withdraw money from your RRSP before you retire, your withdrawal will be immediately subject to a withholding tax and the amount withdrawn is also considered taxable income for the year. RRSPs effectively defer your tax liability to the future when it’s possible your marginal tax rate will be lower in retirement than it was during your contributing years.
Visit GetSmarterAboutMoney.ca to learn about how RRSPs work, making RRSP contributions and making withdrawals before and after you retire. Speak with a registered financial representative or tax professional for investment and tax advice.