RSP vs. RRSP

Difference Between RSP and RRSP

RSP or Retirement savings plan and RRSP or Registered Retirement savings plan are the two popular saving accounts in Canada which are mainly for retirement purpose. Anyone in Canada cannot get a pension of more than $11000 from the government and this is why it is important for them to have their own arrangements for retired life.

RSP is similar to IRA in US as you do not pay tax on the amount you contribute towards it. You get interest on the money that you contribute but do not pay tax on it until it is distributed. You can get it from financial institutions like bank and other trust companies. RRSP is similar to RSP but there is a maximum limit to the amount that you can contribute towards it. RRSP was introduced in 1957 and it encourages people to save for their own retirement and you can choose to go for individual plan, group plan or a common investment with spouse.

In 2010 the maximum that you can contribute towards RRSP is $22000 and except for the withdrawals made for education of for buying a house all other withdrawals are taxable.

To understand the differences between RSP and RRSP following points may be helpful:

  • In case of RSP you can withdraw money although you need to pay penalty for it while RRSP is deferred till your retirement but you pay income tax from the distribution but as in the age of retirement he has already entered the senior citizen’s category the income tax gets lowered.
  • RRSP is safer as it is registered and you get many benefits from government if you invest in it while you are not entitled for any of the governmental benefits in case of RSP.
  • You can link RRSP with your other retirement plans while you cannot do this in case of RSP as it covers only retirement plans.