The RRSP deadline for 2011 is February 29, 2012. Although RRSPs are certainly far from the minds of most students, considering we really don't have any income to speak of and thus little room to contribute, it is important to know how much you can contribute and what the benefits of an RRSP are upon graduation. The earlier you start saving for retirement, the wealthier you're going to be once you retire, so starting young gives you a tremendous advantage compared to a lot of Canadians.

RRSP stands for Registered Retirement Savings Plan. It allows you to defer taxes paid on any money you deposit in the account. It's referred to as an account, but it's not just a savings account. You could hold a wide variety of financial instruments in an RRSP, such as stocks, bonds, mutual funds, GICs and lots more. An RRSP isn't so much a savings account as it is an umbrella for investments that you want to shelter from taxes.

Anyone who earned income can contribute to an RRSP, up to and including the age of 71. The money grows, tax-free, until it's withdrawn. Upon withdrawal, the amount you take out will be added to your income and you pay taxes on it then. The idea is that in retirement, your income is going to be far less than it is now, putting you in a lower tax bracket than you currently are. If the highest tax bracket you are currently in is 31.15 per cent and you expect the highest tax bracket you'll be in upon retirement is 20.05 per cent, you'll be saving money by withdrawing that RRSP amount when you are in the lower tax bracket because you'll be paying less taxes.

You will eventually pay tax on the savings you have inside your RRSP, but hopefully at a lower rate. This is why RRSPs are taxsheltering devices, because you're doing just that: sheltering your savings from being taxed for a period of time. There's a cap of how much you can contribute, though. The maximum is 18 per cent of your previous year's earned income, to a maximum of $22,970 for this year. So, no one can contribute more than $22,970 to their RRSP for this current tax year (this would be the taxes you file in the spring), but your limit may be far less if 18 per cent of your income is less than $22,970. Yes, it's tricky, and it gets trickier because the maximum you can contribute also changes based on how much you contribute to a registered pension plan or a deferred profit sharing plan through your employer, which is beyond the scope of this article.

RRSPs are an excellent way to save for retirement. There is no point in giving the government more taxes than you need to, and if you are saving outside of an RRSP when you have contribution room, you're doing just that. The Canada Revenue Agency will provide you with information each year about how much you can contribute to your RRSP if you ask, but the best thing for someone to do if they want thorough and qualified advice is to talk to a certified financial planner. Preparing people for retirement is a huge part of a certified financial planner's job and if this stuff confuses you at all, you can't go wrong by making an appointment. Make sure to look for a financial planner with the "CFP" designation after their name ("Certified Financial Planner", although "Personal Financial Planner" and "Registered Financial Planner" are also good).

More information on RRSPs, among other tax topics, can be found at taxtips.ca, which is an excellent and up-to-date Canadian web site for gleaning accurate tax information.

Jeremy Wall is studying Professional Financial Services at Fanshawe College. He holds an Honour's Bachelor of Arts from the University of Western Ontario.