|
The RSP’s Role in Retirement Planning
The savings targets obtained by working with the preceding tables are staggering! Most of us would have little hope of amassing this much wealth without some kind of help. Fortunately, help is available through a retirement savings plan.
An RSP puts two powerful forces to work: long-term compound growth and tax deferral. Compounding means that each year’s income is reinvested to earn still more money. RSP tax deferral provides two advantages: immediate tax savings plus tax-sheltered compounding of the plan’s earnings. Basically, you are able to invest more than you would otherwise, and that extra money earns a lot more money over time.
Immediate Tax Savings
RSP contributions are tax-deductible. This means that every $1 you contribute can generate a tax refund of up to 50¢. So, a $5,000 contribution could cost as little as $2,500, with the government footing the balance. The exact amount will depend on your marginal tax rate.
|
