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What is the difference between an RRSP, RSP, RPP and RESP?

An RRSP is an individual retirement savings plan that has been registered with Canada Customs and Revenue Agency (CCRA). CCRA permits tax deductible contributions to an RRSP and income earned in the plan is exempt from tax until money is withdrawn from the plan. Introduced by the federal government in 1957, RRSPs were specifically designed as an incentive for Canadians who have earned income to save for their retirement while they are still working. RRSP stands for “registered retirement savings plan”. The acronym RSP (“retirement savings plan”) is used interchangeably.

An RPP is a registered pension plan (registered with CCRA) established by a company to provide benefits for its employees upon retirement. There are two basic types of registered pension plans. The first is a defined benefit plan and the second is a defined contribution plan. In a defined benefit plan, the formula to determine the pension benefit at retirement is known, but the contributions required to fund the benefit are not known. This type of plan provides a defined level of pension income. In a defined contribution plan, the final benefit payable is not known though contributions to the plan are known. A defined contribution plan provides a plan member with whatever level of pension the property in a member’s account will buy at retirement (the pension is not predetermined).

An RESP is a registered education savings plan and is similar to an RSP in that it offers tax-sheltered growth of funds invested in the plan until the money is withdrawn for the post-secondary education of your child, your grandchild or yourself. Unlike an RSP, there is no tax deduction upon contribution, but the original capital can be withdrawn without penalty. Maximum yearly contributions are $4,000 year with a cumulative total of $42,000 per individual plan.

 

 

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