Registered Retirement Savings Plan (RRSP)
RRSPs are one of the last tax breaks available to Canadians. Contributions made to an RRSP account are tax deductible, resulting in a tax refund or offsetting taxes owing. You can contribute up to 18% of your earned income each year to a maximum of $18,000 in 2006 less a pension adjustment if you belong to a pension plan. If you don't contribute the maximum allowed, you can carry it forward into the future indefinitely.The growth in the plan compounds tax free and you are taxed only when the money is withdrawn. You must collapse the RRSP by the end of the year in which you turn 69.
Registered Retirement Income Fund (RRIF)
A RRIF is an option that is available to individuals collapsing their RRSP. A RRIF allows for a retirement income stream to be received over the course of the investor's lifetime. Like an RRSP, investment earnings in the RRIF are allowed to grow tax-free and are taxable only when withdrawn. RRIFs can be opened at any age however, most are started when investors collapse their RRSPs at the end of the year in which they turn 69.
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