An RRSP is a legal trust registered with the Canada Revenue Agency and used to save for retirement. RRSP contributions are tax deductible. Any income you earn in the RRSP is usually exempt from tax for the time the funds remain in the plan. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan. An RRSP can contain any number of investments: stocks, bonds, mutual funds, GICs, contracts, etc.

RRSPs are the Canadian version of a US IRAs or 401ks.

RRSPs have several tax advantages for Canadians:

1. As a contributor, you can deduct contributions against your income. For example, if your tax rate is 27%, every $100 you invests in an RRSP will save you $27 in taxes, up to your contribution limit.

2. The growth of RRSP investments is sheltered from tax. Unlike with taxable investments, your RRSP returns are exempt from any capital-gains tax, dividend tax or income tax. This means that investments under RRSPs compound at a pretax rate. Compound interest in this tax shelter is basically what Einstein referred to as the 8th wonder of the world.

Do not prematurely remove any money from your RRSP (unless you are taking advantage of the CRA's Home Buyers' Plan (HBP)). Use your emergency fund for any purchases. If you need more convincing, watch this video:

Also, check out the official CRA website on RRSPs.