"How To" Maximize the Power of RRSPs

November 30th, 2021

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When it comes time to retire, you want to have the maximum amount of cash possible in your Registered Retirement Savings Plans (RRSPs). Having more in your RRSP will make your retirement more enjoyable and let you enjoy it longer. To maximize the effect of compounding interest, the best time to start saving and investing for your retirement is right now!

What are RRSPs?

An RRSP is an account designed to offer a way to save for retirement with benefits. The plan encourages Canadian residents to start putting money into the account when young and letting it build until retirement. You can put money into the account until December 31st of the year that you reach the age of 71. At that time, you will need to convert it to a Registered Retirement Income Fund (RRIF).

The motivation to use such a government-provided plan is that it offers beneficial tax breaks. These breaks enable users to save money on the contributions because no taxes are paid on that money until it is withdrawn. It is deducted from your total income, so not only do you not pay taxes on the profits in your RRSP, it also lets you reduce your taxable income for your contribution year, helping you save even more money.

How do RRSPs work?

Contributions to your RRSP account are taken from your taxable income. Making contributions means that you have less income to report each year and contributions reduce the amount of income taxes you owe each year.

There are limits as to how much you can contribute to your account each year. The Canada Revenue Agency (CRA) sets limits on contributions that taxpayers can make each year.

The limits are based on either 18 percent of your previous year's income or up to $27,830 (for 2021) – whichever is smaller. The maximum amount of allowable contributions is changed each year. If you did not meet the maximum allowable contributions in previous years, you can also make it up.

You can make tax-deductible contributions to your account, and you can also claim a taxable deduction for amounts made to a spouse's account or a common-law partner's account. A deduction cannot include any amount paid for brokerage fees, administrative fees, capital losses from the account, or any employer contributions.

You will only need to pay taxes on any amount withdrawn from the account. This means that any profit or dividends earned on the account are tax-free until you withdraw it. If you wait until after you retire, you will likely be in a lower tax bracket, enabling you to save money on taxes.

What are the benefits of RRSPs?

An RRSP can provide you with many benefits – especially if you start early and maximize your contributions. One of the best benefits is that it lets you reduce your taxable income when you would normally pay higher rates.

No matter what kind of investments you choose to work with in your RRSP, you can take advantage of high-yield tax-free benefits. You can choose to work with higher-risk investments (with higher interest rates) – especially when you are younger – because you have a longer period to work with. Because the returns won’t be taxed until you withdraw your money, you can reinvest more of your money and benefit from the higher compounded interests.

One more advantage is that if you own U.S. stocks in your RRSP, you will not have to worry about any withholding tax on the account. The U.S. and Canada have signed treaties that recognize these retirement accounts, which mean you don’t pay taxes on U.S. dividends as you would in a TFSA or margin account.

Buying a home is made easier because you can borrow money from your RRSP to do it. The Home Buyers' Plan (HBP) will let you borrow up to $35,000 from your account, or you and a partner can withdraw up to $70,000 for a down payment. Repayment is necessary, however, and you will need to pay at least 1/15th of the debt each year; and in full within 15 years.

You can also borrow money from your RRSP to further your education under the Lifelong Learning Plan (LLP). This plan lets you take out $10,000 per year – up to $20,000 total. You will need to register as a full-time student to qualify (disabled students can register for part-time) and you have to repay the money within ten years. No tax will be charged on the money if repaid on time. The money cannot be used to pay for a child's education, but you can use it for yourself, a spouse, or a partner.

Even though you will pay taxes on the money in your RRSP, you will only pay them when making withdrawals from the account. If withdrawn after you retire, your taxes will be lower because you will most likely be in a lower tax bracket.

How can you maximize your RRSP?

In order to get the most out of your retirement fund – your RRSP – there are some steps you can take to maximize your benefit. There are several kinds of RRSPs, but the one that will give you the most is one that is self-directed. A self-directed account will enable you to buy and sell various stocks, mutual funds, and bonds, and because of fewer fees, it will not eat up your profit.

You will want to make regular contributions to your RRSP account. You can easily do this with a pre-authorized deposit (PAD). You choose the day the deposit is made, and the money will be automatically put into your account – letting you not have to worry about it or ever forget it

With Passiv, you can invest your new contribution and dividends in a single click. You can even build a tax-efficient portfolio and choose in which account to buy each asset class. For example, you can tell Passiv to only buy U.S stocks in your RRSP so you don’t pay withholding taxes.

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Passiv will also help you understand the performance of your account and let you set your goals for your RRSP.


You can maximize your RRSP more efficiently with Passiv. It will keep you informed about your account's growth and it will enable you to direct funds instantly into the investment of your choice – with one click. Staying in charge of your RRSP lets you maximize your retirement money and ensure a better retirement.

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