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Difference Between RSP and RRSP

rrsp_bookRSP vs RRSP

Today the number of people opting and investing in retirement savings plans is in plenty. This is due to the attractive offers, plans, ease of payment, and payment options available. Also it accumulates as a secured amount, which will help you spend your retirement life in grandeur. There are various retirement plans available. The very common ones are RSP and RRSP.

Retirement Savings Plans (RSPs) are very much sought after these days owing to the luring benefits and schemes. But then what is RRSP? Though many say that RSP and RRSP are different terms referring to the same thing, it indeed is not. There are certain differences between the legalities and benefits associated with the plans.

As mentioned RSP is a retirement saving plan. An RRSP is a registered retirement saving plan. So the first main difference between both the plans is the registration aspect. RSPs are often not registered. The importance of having a registered plan is that, if the plan for which you pay is not registered, you may not be entitled for the government benefits linked to it.

Though both RSP and RRSP are accounts for retirement savings investments, there are many differences between the two. RRSP is a tax saving plan in Canada. So if you invest in RRSP, as per the Income Tax Act, you will be able to save a percentage of your financial income from being paid as taxes. RRSP includes your pension plans and life insurance scheme. So when you opt for RRSP account you can manage your pension, life insurance, and retirement savings plans together. The tax benefit is the other major highlight of the plan. RSP accounts do not offer tax benefits.

Many banks offer both RSP and RRSP to its customers. But some banks offer only either of these plans. And since the terms are often used interchangeably, it would be better if you verify the scheme with the bank before investing. If the plan is not a registered one, you may not get the income tax benefits linked with the registered plans.

RRSP accounts are established by the legal trusts as it is registered. So the credibility and security of investing in RRSPs are higher than investing in RSPs.

Summary:
1.RRSP is Registered Retirement Saving Plan and RSP is Retirement Saving Plan.
2.As the name suggests, RRSP is registered, while RSP may or may not be.
3.Investments in RRSP accounts are subject to tax exemptions according to the Income Tax Act. The investments in RSP accounts do not have any tax exemptions.
4.RRSP covers life insurance, retirement, and pension plans. RSP covers only retirement plans.
5.Investing in RRSP accounts are more secure and reliable than investing in RSP accounts.

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8 Comments

  1. Wrong, banks market RSP and RRSP’s interchangeably. Both offer the exact same tax exemptions.
    INGDirect specifically says:
    “Please note that when we say “RSP” – we do mean “RRSP”. What’s the difference you ask? We eliminated one of the R’s since that’s the way most people say it – RSP. Just another little way we keep things simple. So don’t worry, our RSP is indeed a Registered Retirement Savings Plan once it’s registered with the Canada Revenue Agency (CRA). And it really does grow.”

    • No Jeff you are wrong. If only you had read the entire article you would have read the following:

      “Many banks offer both RSP and RRSP to its customers. But some banks offer only either of these plans. And since the terms are often used interchangeably, it would be better if you verify the scheme with the bank before investing. ”

      Which is exactly the case you describe at INGDirect.

      • No Dan, Jeff was correct and you actually contradicted yourself by saying what he said about ING was the same as the body of text you copied (not the same at all). The article states that an RSP and RRSP are different, ING said they are not. An RRSP and an RSP are the EXACT same thing. There are no two different plans. If you have a “retirement savings plan” that isn’t registered than it is simply a non-registered account which is subject to income tax anytime there is a taxable event (switching investments, selling units or shares). Within an RSP or RRSP (again both the same thing) anything you contribute would be deducted from your income and would grow within the plan tax deferred meaning you wouldn’t pay any tax until you actual withdraw from the plan. At age 71 the plan must be switched to a RIF or RRIF (again the exact same thing).

        • So what about the fact, if there is one, that one gives you a tax break, and the other doesn’t?

          • The article should begin and end with the sentence “There is not difference between an RRSP and RSP, to be sure you should verify with the bank before investing.”

        • Saying RRSP and RSP are no different and are the same thing…why did a letter drop (registered)?
          Man and WOman are very similar…but, yet different.

    • If that were the case, why not call it RRSP? It’s too easy to trick people, including people who have been trained to sell the product.

  2. Are you sure that there is no tax benefit on RSP? My bank tells me that I will still receive tax benefit on my RSPs.

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