It’s RRSP season here in Canada. They work generally the same way as a 401K plan in the U.S. and is a great retirement vehicle for many. But it’s not for everyone.
One argument for putting money into an RRSP is that your investments can grow tax free. But if you’re like me and only hold growth stocks in your RRSP and have never sold and don’t plan to sell any stocks until you retire, then the tax free compounding is mostly irrelevant. eg: If you buy RIM-T today which triples in value over the next 20 years, you would have triple the money you started with regardless of what kind of account you held it in.
Another argument for RRSP is that you will be in a lower tax bracket when you take the money out eventually. But if you’re like me and expect to be in the same tax bracket as you are now when you retire then you should probably save the contribution room for a later year when you potentially could be making more money.
I put some money into my RRSP account each year to diversify my tax risk, but I have never maxed out my contribution room. Everyone should analyze their own situations and decide what the best investment vehicle is for themselves.
