Benefits of a self-directed RRSP

A registered retirement savings plan (RRSP) can help you take control of your retirement fund and offer some tax relief. An RRSP is a tax-advantaged Canadian retirement savings and investment tool. The pre-tax dollars you deposit into an RRSP account grow tax-free until withdrawal.

With a self-directed RRSP, you decide how those funds may grow. For example, you might decide to split your money between mutual funds, savings accounts, and government bonds. Or maybe you want to take your chances on stocks. With a self-directed RRSP, the choice is yours. While, like all investment tools, self-directed RRSPs come with some risks, they also offer the following advantages.

Hands-on portfolio management

You’re free to manage the assets that make up your self-directed RRSP portfolio. That means you choose where to invest your funds, when to sell assets, and when to hold them, as long as you choose qualifying investments. Keep in mind that you might face tax consequences if you choose to invest in assets that don’t qualify for deduction.

You have the final say when it comes to your self-directed RRSP, but that doesn’t necessarily mean you have to make all your investment decisions alone. Unless you’re an expert, you may want some guidance. Fortunately, a broker or financial advisor can help you make informed, thoughtful decisions. You can determine how much support you need; you might consult an advisor to answer specific questions about your investments or ask a bank to take the lead. But ultimately, you have control.

Flexible investment options

When you open a standard RRSP with a financial institution like a bank or a brokerage, you can typically only invest in one of that institution’s offerings, like a mutual fund. With a self-directed RRSP, however, you can split your investments across a wide range of assets, including stocks, mutual funds, bonds, and exchange-traded funds.

This flexibility may make it easier to tailor your retirement savings to your specific goals, risk tolerance, and financial priorities. For example, you may want to divide your portfolio between consistent, low risk investments like bonds, and riskier options with higher potential pay-off, like stocks.

Lower fees (sometimes)

RRSP account holders may pay a variety of fees: annual trustee fees, maintenance fees, set up fees, and management expense ratio (MER) fees, to name a few.

In some cases, a self-directed RRSP might save you money on fees. For example, a robo-brokerage may generate an online portfolio for you based on your responses to a questionnaire or survey. Because this approach doesn’t require a financial advisor to oversee your account, it may come with lower management fees. However, a self-directed RRSP with highly specialized, involved guidance from a bank or advisor might cost as much as a standard RRSP. It’s always a good idea to make sure your account offers you enough value to offset any associated costs.

Tax benefits

Finally, a self-directed RRSP offers the same tax advantages as a standard RRSP. You can deduct your RRSP contributions from your income taxes each year, as long as you don’t exceed the annual limit (18% of your annual income or the Canada Revenue Agency’s maximum, whichever is lower).

Likewise, you won’t owe income taxes on any growth within your RRSP account. Instead, withdrawals from the account are taxed as standard income, according to the marginal rate at the time. That way, your savings have room to multiply so you can prepare for retirement.

Opening a self-directed RRSP

If a self-directed RRSP seems like the right savings tool for you, you can open an account at any participating bank, credit union, or brokerage, in person or online. Be sure to let them know you’re interested in a self-directed option. From there, the financial institution can help you choose the best investments to pave the way for your ideal retirement.