This week, we will begin with Part 1 of our Retirement Investment Income Terminology posts to help you understand the variety of options available to Canadians who are planning and saving for retirement.
1. Registered Pension Plan – RPP
A Canada Revenue Agency registered trust that provides pension benefits to an employee upon retirement. Contributions are tax deductible for the employee and the employer if they choose to contribute as well. Contributions may be made right up to retirement and are taxed as the retired employee receives payments.
2. Registered Retirement Savings Plan – RRSP
A legal Canada Revenue Agency registered retirement trust that may contain mutual funds, GICs, stocks, bonds and mortgage-backed equity. These tax deductible contributions are deducted against income and taxes are deferred until the money is withdrawn during retirement when the marginal tax rate is lower. These investments are also exempt from dividend tax and capital-gains tax. Investments compound at a pre-tax rate and growth is tax sheltered.
3. Registered Retirement Income Fund – RRIF
A retirement fund registered with the Canada Revenue Agency that generates a constant income flow for a beneficiary or beneficiaries from savings accumulated under an RRSP. RRSPs can be rolled over into an RRIF which allows funds to remain tax-sheltered until paid out as retirement income. That income is taxed the same year payouts occur. An RRSP must be converted to a RRIF, annuity, or paid out in a lump sum by the end of the calendar year that you turn age 71.
4. Guaranteed Investment Certificate – GIC
A low-risk deposit investment security sold by banks and trust companies that offers a guaranteed fixed rate of return. The return is typically lower than mutual funds, stocks and bonds.
Additional retirement investment terminology will be defined in future posts. Contact Brooks Financial to help you decide which retirement investment options are right for you.