RRSP Types
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Managed RRSP
Self-Directed RRSP
Spousal RRSP
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Managed RRSP
When someone mentioned about their RRSP account, it is most likely referred to the Managed RRSP account. This is the most common type of RRSP account when you set up your RRSP with banks or financial institutions.
Managed RRSP, as its name suggests, is managed in the professional hands, usually by a schedule I bank. The account is government-registered,and holds products such as GICs or mutual funds. The only investment decision you need to make is deciding which GICs or mututal funds to buy.
However, your investment choices are limited by GICs and one of the many mutual funds offered by your own bank.
Self-Directed RRSP
Self-directed RRSP offers the same tax breaks as Managed RRSP, but it offers you more flexibility and choices to hold all kinds of different investments in a single plan. Besides holding GICs, mutual funds in the account, you can buy stocks, bonds, funds from different companies, and even hold your own mortgage within the plan.
In a self-directed RRSP, you will have much control over your investments, and get more involved into the investment decision-making. This may not fit for everyone. Let's look at the pros and cons for a Self-directed RRSP:
| Pros: |
Cons: |
- Can have a wide range of investment products in one account.
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Can have more flexibility and more informed investment decision-making.
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Easy to manage by consolidating all account under one signle plan.
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- Investor faces the challenge to make the right investment decision.
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Investor has to know quite a bit about investing, and take time to look after the plan.
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There're maybe fees to maintain your account if you don't have enough fund in your account.
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The bottom line, if you have the knowledge and experience, as well as the time to invest on your own, it's worthwhile to manage your own retirement savings.
Spousal RRSP
Spousal RRSP is a type of RRSP account which will help to allocate future retirement income as evenly as possible between you and your spouse. This is a legal way on income-splitting between high-income and low-income earners.
To do that, you and your spouse go to the financial institution to open a spousal RRSP account. (It's a new account other than your spouse's own RRSP account.) Your spouse become the owner of this new account, and you become the contributor.
The higher-income spouse contributes to an RRSP for a lower-income spouse. The contributor receives the short term benefit of the tax deduction for the contributions made. Amounts contributed to spousal RRSP become the property of spouse.
However, the contributor is still subject to his/her personal contribution limit. This means if you are the contributor, your contribution to your personal RRSP and to your spouse's RRSP account combined cannot exceed YOUR OWN RRSP limit for the year.
On the other hand, your contribution does not affect your spouse's personal RRSP contribution limit.
Contributions can be made to spousal RRSP until the end of year in which spouse turns 69, even if contributor is over 69.
