Saving is a great idea! However, your financial situation and savings goals are unique, so while we can't definitively answer this question for you, we can certainly talk about the advantages of this savings account. In your Total Rewards program enrollment process, you can contribute funds from your Wellness Pool to a Manulife Registered Retirement Savings Plan (RRSP).
RRSPs are a great tool for retirement savings. Every year you can contribute up to 18% of your earned income (maximum of $26,500 in 2019), and you'll be refunded each year for the income tax paid on those contributions. That being said, these accounts are tax-deferred, not tax-free, so you'll still pay income tax when you do withdraw these funds upon retirement. You can use RRSPs to save for retirement and buy different investments — such as mutual funds, ETFs, stocks & bonds!
- Limited taxation. RRSPs let you postpone paying taxes on some of your income until retirement, when you're in a lower tax bracket and will pay less tax overall. In this way, you'll keep more of your money in the long-run!
- Great for home-buyers and learners. Normally, you pay a special withholding tax on RRSP funds when you withdraw before retirement. There are two exceptions to this:
- Home Buyer's Plan (HBP). If you're buying your first home, you can borrow up to $25,000 from your RRSP as long you repay your RRSP within 15 years.
- Lifelong Learning Plan (LLP). You can borrow up to $10,000/year (max of $20,000) from your RRSP to pay for full-time studies for yourself or your spouse, as long as you repay your RRSP within 10 years.
- Long-term savings. The higher your tax bracket, the more taxes you'll defer by contributing to your RRSP. To make the most of these accounts, it's a great idea to re-contribute your entire annual RRSP tax refund back into your RRSP.
Things to remember:
- Tax-deferred, not tax-free. You will still have to pay taxes upon retirement, so be aware of your combined retirement income and resulting tax bracket.
- Inflexibility. Contributing to an RRSP is a commitment. With the exception of the HBP and LLP, you won't be able to access these funds without paying a hefty withholding tax, usually ranging from 10% - 30%.
- Limits. You're welcome to have multiple RRSP accounts with different financial institutions, so long as your combined contributions don't exceed your annual limit of 18% of your earned income (maximum of $26,500 in 2019).