RRSP stands for “registered retirement savings plan.” The Canadian government initiated this investment vehicle in 1957 to protect Canadians’ investments as they retire from their jobs. RRSPs work by deferring taxes on funds contributed. It is an incentive for Canadians to put more money into their retirement fund.
RRSPs are known as “tax-deferred” because the contributions are exempt from taxes for that tax year, paying your taxes many years later when the funds reach maturity and when the tax rates are not as severe. An RRSP remains an excellent way to trim down your current tax bill, and you need the best RRSP calculator in Canada to reduce your income tax and figure out your contributions.
Advantage of a Registered Retirement Savings Plan
Let’s assume your income is C$70,000 per annum, and you use the maximum contribution room of C$12,600. When it’s time to pay your tax, the CRA will bill you like you earned C$57,400. Be mindful that tax-deferred doesn’t necessarily mean free, and you’d still have to pay your taxes farther down the road. But hopefully, when that time comes, you’d have retired with a smaller income, thus reducing the size of your tax bill than it is now.
RRSP v GRRSP
One letter differentiates an RRSP from a GRRSP, but that letter can earn you extra tens or hundreds of thousands of dollars in the long-term. Group RRSPs or GRRSPs are company-run RRSPs. You’re in luck if your employer offers GRRSPs because that means you can contribute to the account via deductions direct from your paycheck.
And while they have a few drawbacks, like higher fees and limited investment choices, they have one big draw that makes its disadvantages pale in comparison – for every dollar you contribute, your employer will match a portion of that dollar in return. The free employer dollars gives you a considerable advantage in compounding your investment in the long term.
Best RRSP Calculators in Canada
The best RRSP calculator in Canada must help you understand how much you need to save, your contribution limit, and what happens if you pull out your RRSP funds before you retire. Below are some of the best RRSP calculators in Canada.
Turbotax RRSP Calculator 2020
The Turbotax RRSP calculator is a powerful tool from renowned tax preparation software Turbotax. Developed by Intuit, the RRSP calculator enables you to crunch out the numbers to determine how RRSPs can impact your finances. Some of the features include:
- Province of Residence: The Turbotax calculator provides a better estimate of your payments using your area of residence.
- Employment Income: Employment income is any money you receive as commissions, wages, or salary and includes tips, bonuses, and gratuities as well as honoraria.
- Income tax: The amount payable as your income tax
- Other income: This income includes your other sources of funds, including rental income, OAS, CPP, EI, CESB, and CERB.
- RRSP contribution: this amount is 18% of income earned the previous year or the CRA limit, whichever is lesser. The current RRSP contribution limit is C$27830.
The Turbotax RRSP calculator also includes a slider that allows you to change your contribution amount.
Wealthsimple RRSP Calculator
Wealthsimple is an online investment company that helps investors create wealth in a more straightforward, technologically-driven way. Founded in 2014, Wealthsimple currently has assets under management (AUD) of C$8.4billion. The Wealthsimple RRSP calculator is arguably the best RRSP calculator in Canada. It provides an estimate on your contribution amount and its worth in the future, considering inflation. Some of the features include:
- Age: The age you started contributing to your RRSP
- Pre-tax income: The amount of money you earn before tax. This income includes any money you receive as commissions, wages, or salary and contains tips, bonuses, and gratuities as well as honoraria.
- Current RRSP Savings: The amount of money currently in your RRSP
- Ongoing contributions: The amount of money you’re currently contributing.
- Contribution frequently: How often you contribute, whether weekly, bi-weekly, monthly or annually.
- Age: At what age you’ll stop contributing. Some Canadians decide to stop at 65, while others may contribute until 71.
- Annual return rate: The percentage of return you expect for your investments between now and retirement.
- Life expectancy: The amount of years the contributor is expected to live.
- Annual return retirement rate: The percentage of return for your investments after retirement.
Ontario Securities Commission RRSP Calculator
The OSC is a regulatory body charged with protecting investors by making and enforcing the rules guiding the Ontario securities industry. The OSC has an RRSP calculator that includes:
- Amount: The amount of money currently in your RRSP account
- Annual return rate: The percentage of return you expect for your investments between now and retirement.
- Contribution about and frequency: How much you’re putting in your RRSP and how often.
- Current age: your age at the time of contribution
- Years till retirement: How many more years to work before retiring
- Annual return retirement rate
Sun Life RRSP Calculator
Sun life is a health and investment company that aims to help Canadians achieve financial security while having a better quality of life. The Sun Life RRSP calculator has basic features but still provides decent results. Some of the features include:
- Current age
- Retirement age
- Current RRSP Savings
- Assumed Return Rate
BMO RRSP Calculator
The Bank of Montreal is a big Five Canada bank with branches across North America. The bank’s RRSP calculator has decent features that include:
- Number of years of retirement
- Rate of return on retirement savings
- Monthly retirement income from outside sources
- Annual retirement income pre-tax
- Inflation rate
- Expected age of retirement
- RRSP return rate
RBC RRSP Calculator
RBC is Canada’s largest bank in asset size and capitalization but still has one of the most straightforward calculators for RRSP. The RBC RRSP calculator has features that include:
- Years to retirement
- Contribution amount
- Contribution frequency
- Expected return rate
TD Bank RRSP Calcultor
TD Canada Trust RRSP calculator has a simple design with the barest minimum of information to calculate your RRSP. Some of the details you’ll have to provide include:
- Your age
- What you make before tax
- Your current RRSP savings
There is also a check box to provide additional sources of income.
FAQs
What is an RRSP?
An RRSP is a financial savings plan initiated by the Canadian government that ensures contributions are not taxed until retirement. The aim is to provide tax breaks as a means of getting Canadians to save for retirement.
What is the difference between an RRSP and a TFSA?
An RRSP is an investment account specifically used for retirement savings. Contributions into an RRSP are tax-deferred and safe from taxation for that income tax year, while funds in a TFSA are not tax-deferred. Although it’s not possible to deduct TFSA contributions from your income tax, the profit from your TFSA is tax-free. You can also withdraw funds from a TFSA at any time without sanction from the CRA. TFSAs may be owned for life, but RRSPs expire at the age of 71, and you’d need to convert it into another account.
Is RRSP better than TFSA?
It isn’t straightforward to say one is better than the other because it depends on your financial goals and when you need your funds. RRSPs are an excellent choice for long-term Savers with the discipline not to take out from their savings. TFSAs are ideal for investors with short-term financial goals. TFSAs don’t incur withholding tax even though they have a lesser contribution kit than RRSPs.
What are the factors that affect RRSP Performance?
Some of the factors include your contribution amount, investment performance, and age of retirement. Another factor is whether you’ll take out money from your RRSP. Taking out funds before retirement damages your investment, making you lose thousands of dollars in compounding rates.
What happens if I exceed my RRSP limit?
Going beyond your contribution limit isn’t a problem if you go over by C$2000 or less. Exceeding that limit will cause the CRA to give you a penalty of 1% of the over-contributed funds. Be mindful excess contributions won’t be considered tax-deductible.
What is the RRSP Contribution limit for 2021?
The RRSP contribution limit for 2021 is C$27,830.
