How do you choose the right RSP for you?
Finding the right fit comes down to your knowledge and expectations
You’re thinking about opening a retirement savings plan. That’s a good thing. Aside from the obvious benefit of creating a nest egg for your retirement, you may also get a nice deduction on your upcoming tax return.
And the savings you put away can have several years of tax-deferred growth before you withdraw the money.
Many rookie investors think that once you decide how much to put into your RSP, you’re done. However, you also have to decide where and how you want to invest the money — which vehicles and products to use.
“Once you’re ready to invest, you have to decide on your RSP type,” says Kurt Rosentreter, a financial advisor and chartered accountant. “One option is to explore the group plan that may be offered by your employer.” This type of plan is sponsored by your employer, who may top up or match your contribution. “It’s wise to take advantage of this because the employer’s contribution is like free money.”
An RSP is a “portable asset,” says Kathleen Peace, partner and wealth advisor at Woodgate Financial Inc. and Investment Planning Counsel. “So if you leave your job, you can take it to any financial institution.”
Another benefit is that you can arrange to have contributions automatically withdrawn from your pay, so you won’t miss the money. But you may not be happy with the investment options your employer’s plan offers. If you’re looking for more control of your investments, another option is to set up an individual plan with your bank.
“In this case, you deposit your money into an RSP account and you can choose to buy the bank’s financial products according to characteristics like your risk tolerance and your financial goals,” explains Rosentreter.
For those interested in doing their own investing, “self-directed RSPs can be managed online. You can do this through most financial institutions,” explains Peace. “This is an attractive option to the investor who wants to select and manage their investments themselves and pay minimal transaction fees.”
Remember to take stock of your own goals and expectations before choosing an investment.
“How and where you invest should be aligned to your risk tolerance, time horizon, tax bracket, financial knowledge, return expectations, retirement goals and other factors,” says Rosentreter.
Thinking about opening a retirement savings plan? First you have to decide where and how you want to invest the money.