What are RRSPs and how do they work?

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Discover RRSPs and see how they can help you save for your retirement and defer taxes for the current year.

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is a savings plan that is registered with the Canada Revenue Agency (CRA). Contributions made to a RRSP are tax-deductible and can help you save money for retirement.

RRSPs are offered through online brokerage companies, banks, and other financial institutions. 

What does an RRSP do?

An RRSP can help you meet important financial goals. They provide a way for Canadian residents who pay income taxes in Canada to save for retirement and defer tax. In simpler terms, contributing to an RRSP can help you lower your current income tax. The amount you can contribute annually is subject to a maximum contribution amount, which is also called RRSP contribution limit. RRSPs are tremendously versatile – you can hold various investments within an RRSP and growth is tax sheltered until withdrawn. You can even withdraw funds from your RRSP at any time, subject to withholding taxes. However, there are certain special programs such as Home Buyers’ Plan and Lifelong Learning Plan, under which you can withdraw money from your RRSP account without having to pay taxes, but you must repay the withdrawn amount within the defined time period.

When is the RRSP deadline?

February 29, 2024 is the deadline for contributing to your RRSP for the 2023 taxation year. If you miss the RRSP deadline, your contributions in 2024 will be counted towards the 2024 taxation year.

Benefits of investing in RRSPs

  1. RRSP contributions are tax-deductible, which means you can reduce your taxable income

  2. You can withdraw money early from your RRSP to buy your first house

  3. You can carry forward your unused contribution limit to future years

  4. Harness the power of compounded growth

  5. You can convert an RRSP to RRIF to receive payments

Types of RRSPs

  1. Regular RRSP - With a regular RRSP account, you simply open an RRSP with your bank. The investments you can hold in this RRSP account will be restricted to the investment types offered by your bank. Typically, these would include GICs, savings accounts and your bank’s mutual funds. This is mostly suitable for those investors who cannot or do not want to manage their investments on their own and need the help of a financial advisor.

  2. Self-directed RRSP - With a self-directed RRSP account, you're not restricted to the investment types offered by your financial institution. You can invest in mutual funds, GICs, stocks, bonds, ETFs and more. As the account holder, you get to make all the decisions. Plus, you get complete control over the management of your investments.  

RRSP Limits and Withdrawals

Have you ever wondered about what the RRSP contribution limit is, what happens to your RRSP contribution room if you don't use it, or how to withdraw funds from your RRSP? Here are some answers.

RRSP contribution limit

The annual RRSP contribution limit is 18% of the “earned income” you reported on the previous year's tax return up to a maximum dollar limit, subject to any pension adjustments. Your RRSP contribution limit is the lesser of the two.

The maximum dollar contribution limit for 2023 is $30,780. The maximum dollar contribution limit for 2024 is $31,560. The maximum amount you can contribute is also sometimes referred to as the RRSP contribution room. If you exceed your RRSP contribution limit by more than $2000, you will have to pay a tax of 1% per month on the excess contributions.

Note, the RRSP contribution deadline for the 2023 tax year is February 29, 2024.

What happens to your unused RRSP contribution room?

If you don't use your entire RRSP contribution room in any year, your unused room is carried over to future years until the end of the year you turn 71. Unused RRSP contribution room is accumulated each year, building from one year to the next.  

RRSP Withdrawals

RRSP withdrawals can occur at any time, including at retirement. No later than the end of the year you turn 71, your RRSP must be converted to a permitted form of retirement income, one of which can be a Registered Retirement Income Fund (RRIF).

While there may be many reasons to withdraw funds early from your RRSP, if you do, there are facts you should know:

  1. The amount you withdraw from your RRSP before retirement (except for withdrawals under the RSP Home Buyers' Plan or the Lifelong Learning Plan) will count as income for tax purposes.

  2. Withholding tax will be charged.

It’s also important to note that, unlike withdrawals from a tax-free savings account (TFSA), withdrawals from an RRSP are not added back to your contribution limit.

What is RRSP withholding tax?

Your financial institution will withhold the federal and provincial tax when you withdraw funds from your RRSP.

  1. Between 10% to 30% may be withheld, with the rate depending on the amount withdrawn and your place of residence.

  2. For Canadian residents, the actual tax you pay will be adjusted when you file your tax return.

RRSP Investment Options

As per Canada Revenue Agency, only qualified investments can be held within a RRSP. Qualified investments include:

  1. Money, GICs and other deposits

  2. Most securities such as shares of corporations, warrants and options, and units of exchange-traded funds and real estate investment trusts

  3. Mutual funds and segregated funds

  4. Canada Savings Bonds and provincial savings bonds

  5. Debt obligations of a corporation listed on a designated stock exchange

  6. Debt obligations that have an investment grade rating  

Converting your RRSP to a RRIF

An RRSP can be converted to a Registered Retirement Income Fund (RRIF). The purpose of an RRIF is to provide retirement income.  Under RRIF regulations, a percentage of your RRIF must be withdrawn each year.

You may potentially be in a lower tax bracket at the time of these withdrawals than during the period that you were making regular contributions to your RRSP.

RSP Home Buyers' Plan

If you are a resident of Canada with an RRSP and are planning to purchase your first home to use as your principal residence, you can withdraw up to $35,000 from your RRSP tax-free, subject to eligibility and conditions. Your RRSP withdrawal under the RSP Home Buyers' Plan (HBP) can be from different RRSPs that you own. 

  1. Funds that you withdraw under the HBP must be contributions that have been in your RRSP for at least 90 days.

  2. You must receive the withdrawals within one calendar year.

  3. Locked-in RRSP funds from a former employer's pension plan are not eligible.

A Home Buyers' Plan withdrawal must be paid back to your RRSP within 15 years. You need to recontribute at least the minimum annual amount, which is 1/15 of the borrowed amount, each year. If you repay less, the difference is added to your taxable income for the year. You must start paying back the withdrawn funds in the second year following the withdrawal.

Lifelong Learning Plan

The Lifelong Learning Plan (LLP) is a program that allows you to withdraw RRSP money to fund your education without paying tax, subject to eligibility and conditions. 

  1. You can withdraw up to $10,000 annually.

  2. The maximum available to withdraw under the LLP is $20,000.

  3. You must pay it back to your RRSP within 10 years. If you are unable to contribute the minimal annual amount, then it must be added to your taxable income for the year.

The Lifelong Learning Plan can be used for you or your spouse, but it cannot be used for your children.


What is a Group RRSP?

  1. A Group RRSP is a group registered retirement savings plan that your employer sponsors. Employers typically design group RRSPs to encourage employees to save for retirement, often adding matching contributions as an incentive. 

  2. Contributions made by you, or the employer are tax-deductible. 

What is a spousal RRSP?

  1. A spousal RRSP is a retirement savings vehicle that helps to save for your spouse or common-law partner’s retirement. It allows you to contribute money to your spouse or common-law partner's registered retirement savings plan, up to your personal contribution limit.

  2. This is often done with the objective of evenly splitting the retirement income between a couple to reduce the tax burden at retirement.

  3. You can continue to contribute to a spousal plan until the end of the year your spouse turns 71.

What happens to an RRSP at death?

  1. When someone with an RRSP dies, the full value of their RRSP must be included in income for the year of their death. 

  2. If a beneficiary has been named, the fair market value of all property in the RRSP would be paid to the beneficiary. 

  3. Where certain conditions are met, a qualifying beneficiary, such as a spouse, may be eligible to transfer the amount to a registered plan of their own on a tax-deferred basis.  

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