A registered retirement savings plan, or RRSP, is a savings plan for individuals which allows them to defer tax on money to be used for retirement. RRSP contribution limits are based on income and are tax deductible at the time of deposit. Tax is paid when investment and interest or dividend income is withdrawn.

This method of tax deferral is one of the most significant tax planning ideas available to Canadian taxpayers. By making contributions to a plan no later than 60 days after the current year-end, a deduction from income can be taken in the current year for the amount within certain limitations. An immediate tax saving results and the tax refund can be reinvested or used currently for personal purposes. What’s more, income earned on contributions accumulates tax-free. When contributions are withdrawn, they are included in income; however, given that this will normally occur during the taxpayer’s retirement years, they will typically be taxed at a lower marginal rate as retirees tend to have less income than they did during their working years.

Contribution limits for 2009 are 18% or earned income (based on the previous years income) to a maximum of $21,000. This maximum accumulates every year that it is not taken. Because of this, we often see opportunities in “Catch up” contributions. Using multiple companies to finance RRSP loans, we often use this opportunity in years of higher income as tax savings strategies.