So, you want to open an RRSP?

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Even millionaires know you can’t stay rich forever without careful financial planning. So, apart from budgeting for day-to-day expenses, you should also plan a retirement fund. An RRSP, registered retirement savings plan, is ideal for people who can set aside a portion of their income each month or those who want to invest their tax savings. Opening an RRSP is easy, but it is important to do some research before opening an account.

Shop around

You can open an RRSP account in a number of ways. Banks, credit unions, insurance companies and trust companies will all offer you different types of RRSPs. So, before you fill in the paperwork, research the different plans and how they work.

Decide how you want to invest

Depending on the RRSP plan, you can invest your money in a number of different ways. This includes savings accounts, stocks, mutual funds, ETFs, bonds, GICs and segregated funds. Take some time to review the risks of the various investments, generally bonds and GICs tend to be lower-risk investments.

Alone or together

You can set up an individual RRSP account and contribute to it on your own or your spouse can open a spousal RRSP account and you can contribute to it. By arranging for eventual RRSP withdrawals to be taxed in your spouse’s hands, retirement income will be more evenly split between the two of you. This is beneficial especially if your spouse falls into a lower tax bracket. Your contribution to your spouse’s RRSP does not interfere with their own contribution limits, though it does reduce your contribution room.

An RRSP can also be set up for a group. For example, the employer of a company could set up an RRSP. In such cases, contributions may be made through a direct deduction from your payroll. This allows you to invest your money evenly throughout the year. It also has lower management and administration fees as compared to multiple individual plans.

Know your limit

RRSP contributions are tax deductible, but there is a limit on how much money you can invest in these plans. To know this limit, you should talk to your financial advisor. Usually, you can invest up to 18% of your last year’s earned income. These contributions will be made in installments throughout the year, or as a one-time payment. Investing small amounts on a regular basis is usually easier. If you cannot invest the full amount allowed, the unused contribution amount can be carried forward to the next year. This can be done indefinitely until you reach the age of 71.

Once you have set up your RRSP, keep a copy of your application and records of all your investments in a file. Also, keep the tax receipts you will receive for your RRSP in this file.

This post contains sponsored links from Sun Life Financial.