Opening your first RRSP? Here's what you need to know

How do you choose the right RRSP for you? 

Before you do anything, you may want to think about the type of RRSP that’s right for you. This often comes down to whether you’ll be investing on your own or with others.

One option is an individual RRSP, which is an account registered in your name. The investments held in the RRSP and the tax advantages associated with them belong to you. An advisor can help build and manage your RRSP investment portfolio.

Your employer may offer a group RRSP. The benefits of going this route may include:

• matching contributions from your employer (that means free money for you), 
• lower management fees on the investments you hold in your RRSP, and  
• the ability to make automatic contributions straight from your paycheque.

Another option is a self-directed RRSP, in which you make buy-and-sell decisions yourself. You can invest in common types of qualified investments including GICs, bonds, mutual funds and more. With a self-directed RRSP, you pay commissions on transactions you make – depending on the investments you hold. This is the same as you would in a non-registered brokerage account. In addition, an annual administration fee of about $125 usually applies to these accounts.

There are also spousal RRSPs. Let’s say you have a spouse and one of you earns significantly more than the other. The higher earner can make their RRSP contribution to a spousal RRSP. Then, they claim the deduction to recover tax paid at a higher rate. In retirement, the spouse who earned lower income (with less opportunity to save for retirement), can: 

• withdraw from the spousal RRSP, 
• pay tax at lower rates (likely), and
• have overall tax savings. 

But, there are various rules and exceptions around: 

• withdrawing from spousal RRSPs, and 
• calculating the taxable income you and your spouse or common-law partner must report. 

You can find detailed information about these rules and exceptions at the CRA’s website.  

How many RRSP accounts can you have?

You can open more than one RRSP. Just remember that your contribution limit remains the same, whether you have one or several RRSPs. 

How do you set up an RRSP and what’s the cost?

There’s  typically no cost to set up these plans. You simply make an appointment with an advisor and fill out the paperwork. (Many advisors now offer to meet Clients virtually due to the COVID-19 pandemic.) 

However, you may pay fees on the individual investments you choose for your plan. Mutual funds, for example, will charge management fees. (Note that your financial institution will take fees directly out of the fund’s returns. So you don’t get a physical bill.)

Your advisor will review the fees for any investment before you buy.

Should you choose a beneficiary for your RRSP?

When you’re opening your RRSP, your advisor will ask if you want to name a beneficiary.*

By doing this, your RRSP can bypass your estate and go directly to your named beneficiary when you die. If you name your spouse as the sole beneficiary, the cash  can roll into your spouse’s RRSP tax-free.

*If you live in Quebec, you can name a beneficiary to an RRSP only if you’re invested in an insurance product. (i.e. segregated funds or insurance GICs). 

Be aware that naming anyone other than a qualified spouse or partner can have serious tax implications. If you name an adult who isn’t a qualified beneficiary, the value of your RRSP would generally be taxed as regular income in the year of your death.

• Are you saving enough for the future? Find out how much you may need to save with this  Retirement savings calculator.