I really struggle with RRSPs. I understand they are retirement saving funds but what makes them different then just regular savings?
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RRSPs are a registered savings plan, meaning they are registered with the Government.
RRSPs are excluded from taxes, meaning that you don’t pay income tax on money put into your RRSPs. You get this back as a tax return.
The catch is when you retire you have to pull that money out, and you pay taxes on it at that time counting it as part of your income. But since you’re theoretically making less money as a retiree you get charged taxes based on a lower income bracket.
That money in the meanwhile sits in an investment account usually managed by your bank so it collects interest.
You can pull money out of your RRSPs if you badly need it, but you will have to pay taxes on it.
You can also borrow against your own RRSPs for your first home but you have to pay that back over 15 years or face a tax penalty
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