What’s the difference between an RRSP and RSP? Or are they the same thing?
The shorthand RSP stands for Retirement Savings Plan. An RSP is not a specific type of account or plan, rather it’s an umbrella term which can be applied to any account that is being used to save for retirement. It’s a broad, general term. If you’ve got a savings or investment account geared toward supporting you when you retire then you have an RSP.
The term RRSP is shorthand for an Registered Retirement Savings Plan. This is a special type of account which is used to invest money now with the intention of using the money later (presumably during your retirement years).
What is special about an RRSP is putting money into the account (up to a certain amount) gives you income tax credits. If you put $1,000 into an RRSP, from the point of view of paying taxes, it’s sort of like you didn’t make that money and the government gives you a tax credit. This earns you a larger refund when you file your income taxes.
On the flip side, when you take money out of an RRSP you end up paying taxes on the money you take out as if it were employement income.
For this reason most people contribute to RRSPs when they are making a comfortable amount of money, resulting in tax credits and lower taxes. They wait to take money out of the RRSP account until after they are no longer working and pay tax on the RRSP withdrawl as if it were income.
You could say an RRSP is like telling the government “For tax purposes, pretend I didn’t make this money now when I’m investing it. Pretend I make it later when I get it back and tax me then.”
An RRSP is a retirement savings plan, so it’s a special type of RSP. In other words all RRSPs are also RSPs. However, not every RSP is registered and is therefore not necessarily an RRSP.
You can learn more about RRSPs and how they work on the Canada Revenue Agency website.
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