With the March 2 RSP deadline looming, it’s often the only time of year we give retirement savings much thought.  While most financial institutions extol the virtues of RSPs (it is a big part of their business after all), I’m seeing more articles and debate about their usefulness.

From RSP supporters we hear about the benefits — you can deduct RSP contributions from income so you pay less tax and the income earned in an RSP is tax-sheltered.

On the flip side, naysayers argue that RSPs aren’t really a tax savings, just a tax deferral because you have to pay tax when you withdraw the funds.  The drawback is that if you are still in a high tax bracket when you withdraw the money at retirement, then you pay tax at that higher rate and you might also lose the Old Age Security pension benefits.

The RSP dissenters often recommend paying off your mortgage, keeping money in your corporation if you have one or investing outside your RSP and now the TFSA.

Who’s right?  For most Canadians, I still think that RSPs are the way to go (and I don’t sell investments, so no vested interest here).  You can always use your RSP tax refund to pay down your mortgage.

RSPs almost always make sense if you fit this profile:

• You are under 50 with 10-15 years to retire
• You have less than $200K invested in RSPs to date
• You are in the highest tax bracket now
• You pay less than 6% on your mortgage
• You have a balanced portfolio of conservative stocks, bonds and cash investments in your RSP

RSPs may not be the best option for you if you’re close to retirement, already have tons saved in your RSP account, and expect that your retirement income (after any income splitting) will put you in the highest tax bracket (over $126,000/year).

If you’re not sure what camp you fall into, then go ahead and put money into RSPs.  Most people think twice about withdrawing money from an RSP before retirement so there’s a greater chance that you’ll have some savings when you retire even if you do have to pay some tax.

Karin Mizgala is a Vancouver-based fee-for-service financial planner with an MBA and a degree in psychology. She’s the co-founder of the Women’s Financial Learning Centre.