As I discussed in my last article, the Tax Free Savings Account (TFSA) has emerged as an alternative to an RRSP in saving for retirement and is a viable alternative for many Canadians; especially those with lower incomes or those at risks of government benefits claw-backs in retirement (I encourage you to speak with your financial adviser to find out what is best in your situation.) However, for most of us, the RRSP will be the cornerstone of our retirement plan - and with good reason. The deadline to make a contribution to reduce your 2011 income taxes will be February 29th, this year. Here are some compelling reasons why you should make a contribution.

The Registered Retirement Savings Plan (RRSP) was created by the federal government of Canada in 1957 to encourage Canadians to save for retirement. Unfortunately most Canadians do not take full advantage of this very tax efficient way to save money for future income needs. Here are some of the benefits:

1. You get a tax deduction. This tax deduction is more valuable to those with higher incomes and the specific amount of tax you save will depend on your marginal tax rate.

2. Once inside the tax-sheltered environment, your investments can grow faster than they would outside an RRSP where there would be annual tax on gains or income from the investments. Your investment income stays tax sheltered while your money remains within your RRSP, and later after you switch to a Registered Retirement Income Fund (RRIF). All taxes are deferred until you withdrawn the funds.

3. The beauty of RRSP's compound growth is that you can invest the tax dollars that you defer. Deferred tax is really a zero-interest loan from the government and you won't repay the loan until much later in retirement.

4. When you do start withdrawing money from your RRSP/RRIF you may be in a lower tax bracket. For example if you are currently in a 40% tax bracket you would get back $400 for a $1000 contribution. While in retirement with potentially lower income, if you were in a 30% tax bracket, you would only pay $300 in tax when you withdraw the funds. A savings of $100 in tax.

5. If you are ever tempted to dip into your RRSP savings before you retire (other than for a Home Buyers Plan or Lifelong Learning Plan) you would have to pay tax on your withdrawals. This disincentive to withdrawing the money early makes it more likely that the funds stay in the plan and remain for their intended use - retirement income.

6. You can use your RRSP to help buy your first home. The Home Buyers Plan (HBP) allows you to withdraw funds from your RRSP to use for the down-payment on a qualifying home without paying tax on the withdrawal. However, the money must be repaid to your RRSP over the next 15 years or the minimum annual payment will be added to your income and you will pay tax on that. The repayment is not tax-deductible (you got the tax break the first time you put in the money). The full rules are complex, so check with the Canada Revenue Agency or your financial adviser to ensure you follow the guidelines.

7. TheLifelong Learning Plan (LLP)allows you to withdrawal up to $20,000 from your RRSP to finance training or education for you or your spouse. (not your children) The withdrawals can be a maximum of $10,000 in any one year and can be spread over four years. Repayment is on a 10-year schedule. Again, it can be confusing, so ensure that you are aware of the rules. One point to keep in mind is that while the ability to withdrawal funds from either of these two plans is a benefit, you lose much of the tax-free compound interest you could have made on that money had it remained invested, so you may want to repay the money faster than you are obligated if you can.

8. You can claim your deduction when you need it most as the tax deduction for your RRSP contribution can be carried forward indefinitely. Most people claim their RRSP deduction the same year they make it, but that may not always be the most tax efficient way to do it. If your taxable income is very low, you may want to consider deferring your claim for deduction to a year in which your income and tax rate are higher in order to maximize your overall tax savings.

9. RRSP income can be important even if you have a pension. Very few employer sponsored pension plans are designed to provide all of the retirement income you will need, so saving on your own through an RRSP can be essential. For example, let's assume your pension plan at work provides 40 per cent of your needed retirement income, even with government programs such as the Canada Pension Plan and Old Age Security there still could be a gap between what you require in retirement and what you will receive. That is where saving through your RRSP can be so important and can determine the lifestyle you will have in your golden years.

10. Canadians are living longer than ever before. You will likely need all the RRSP savings you can accumulate to cover the costs of a retirement that will likely last 25 years or longer.

11. Not only are we are living longer, we also want to retire at younger ages. One of the issues facing early retirees is that some of the other retirement income streams only kick in well after they retire. Early withdrawals from your Canada Pension Plan (CPP) can only happen at age 60 and Old Age Security (OAS) does not start to roll in until age 65. The RRSP is the perfect way to finance the gap before those other sources of cash flow become available.

So, with the deadline for contributions to reduce your 2011 taxes only a month away, discuss with your advisor if a contribution to your RRSP makes sense for you.