Eight ways to utilize your RRSP

Traditionally, as investors approached the pre-retirement phase of their lives, many will carefully turn from higher risk investments to less volatile ones. While some elements of this strategy remain important, your own strategy could look different. You may want to consider, for example, that your lifespan today could likely be greater than those of previous generations. A number of us will also remain healthier for longer. That means that any money you have saved for retirement could need to be stretched a little further. As well, you may need a portion of your savings to continue to grow well into retirement. Your personal investment strategy will also depend on how much you plan to spend in retirement: Costs can rise, both in the early years when retirees are more active, as well as later in retirement when healthcare expenses come up. 

Nicole Ewing, Principal, Wealth Planning Office, TD Wealth, says that changing your RRSP investment strategy will largely depend on your risk profile, time horizon and income needs, as well as numerous other considerations. But she adds that "this is really where a financial planner or investment advisor can provide significant value — helping you determine how to best approach your asset allocation as some (or all) of these considerations evolve with time." 

RRSPs were first launched in 1957. Initially called a "Registered Retirement Annuity," it was conceived as a way to help self-employed workers who didn't have a pension plan to save for retirement.²

Source: Statistics Canada

No! If you expect your overall taxable income to increase in a subsequent year, it could be beneficial to make your RRSP contributions as usual, but wait to claim the tax deduction until you're in a higher marginal tax bracket says Ewing. Similarly, if you experience a year of lower-than-usual income (for example if you've been laid off or taken a leave of absence), you might consider delaying your claim.

"Generally speaking, the higher your marginal tax rate, the greater the impact each dollar of RRSP deduction will have when compared to lower marginal tax rates," Ewing says. That's all to say, it can be important to be strategic when planning out your RRSP contributions and subsequent deductions.

The maximum annual RRSP contribution value in 2025 is $32,490.³

Your maximum RRSP contribution limit is equal to 18% of any pre-tax income earned in the previous year. Any unused contribution room can be carried forward.

Source: How does an RRSP work? 2025, TD Bank.

As you may know, Canadians must convert their RRSP savings into a retirement income vehicle, such as a Registered Retirement Income Fund (RRIF), no later than December 31 of the year in which they turn 71. But you can convert earlier and make regular annual withdrawals although there are risks to consider.

Georgia Swan, Tax and Estate Planner, TD Wealth, says that although there may be circumstances when converting your RRSP to a RRIF early makes sense, you'll want to carefully consider your decision before moving forward: "It's going to depend on a lot of different things," she says.

Let's say, for example, that you've retired early and need the additional income. In this scenario, Swan says it could make sense to convert early because there would be no withholding tax to withdraw the minimum from your RRIF, whereas you would pay tax on withdrawals from an RRSP.

Another situation that may warrant early conversion has to do with spousal eligibility. If your spouse is younger than you, Swan says, you might consider converting now and using your spouse's age to reduce the minimum withdrawals, which would reduce the amount of tax payable. Here's how that could work: Minimum RRIF withdrawal amounts are based on age. The older you become, the more money you must withdraw. However, when there's a large gap in age between partners, the older spouse can elect to use their younger spouse's age for the purpose of the RRIF withdrawals calculation. "This could spread your income out more over time and result in a reduced tax load," she says.

Swan adds that anyone contemplating converting their RRSPs early should consider their own longevity, and how that could impact their savings. If your RRSP holdings are significant, you may want to begin RRSP conversion and withdrawals earlier. Similarly, if you have health concerns that could affect the length or quality of your retirement, you might also take that into account.

Having said all that, Swan cautions those who are eager to convert their RRSPs: If you begin drawing down your RRIFs while still working, you could easily end up paying more tax than necessary.

"It really is a number crunching exercise," says Swan. "You'll want to consider all of the variables before deciding to move forward."

The TD Canadian Index Fund, TD Bank's oldest continuous mutual fund, was introduced in 1985. ⁴

Source: TD Canadian Index Fund, TD Asset Management, Fund Facts, July 2024. ⁴

The treatment of your RRSP or RRIF when you die will depend on the named beneficiary, says Mindi Banach, Tax and Estate Planner, TD Wealth. If your spouse is your sole beneficiary (or successor annuitant), the funds can roll over to their RRSP or RRIF tax-free. Banach notes, however, that your spouse must transfer the funds directly into their own RRSP or RRIF to qualify for the tax exemption. If they don't have either, a rollover can't occur.

For non-spousal beneficiaries, Banach says the funds in the accounts are generally considered income for the deceased's estate and will be taxed accordingly. "However, that could become complicated if the deceased's estate does not have the money to pay the tax," says Banach. "The CRA may ask the beneficiaries of the registered funds to pay instead."

Finally, if no beneficiaries have been named, or the estate is named as the beneficiary, the RRSP or RRIF will go to the estate — meaning it could be subject to probate fees and tax before being distributed to the beneficiaries. 

A successor annuitant* is a spouse or common-law partner who is named to take over the RRSP or RRIF from the moment their spouse dies. "The benefit is there is no change in the investment portfolio within the RRSP or RRIF. The investments transfer over in-kind," says Swan. That also means no tax bill at the time of transfer.

On the other hand, anyone can be named as a beneficiary. When you pass away, your RRSP or RRIF will be collapsed, and the funds paid out to the beneficiary. Unless the beneficiary is a qualifying survivor (that is, a spouse, common-law partner or financially dependent child or grandchild), the estate will have to pay the requisite tax on those funds before the beneficiary can receive them.

It may come as a surprise, Swan says, that there may be cases where naming a spouse as a beneficiary is actually a better option than naming them as successor annuitant. "For one, you may actually want to trigger some income when your spouse dies," she says. "If so, naming a spouse as beneficiary allows them to elect out of the spousal RRSP or RRIF rollover. This can't happen if the spouse is named as successor annuitant."

Swan also points out that while your spouse can be named as beneficiary and elect to be treated as a successor annuitant in certain circumstances, the reverse is not true.

*Note, the terms successor annuitant and beneficiary as defined above apply to all jurisdictions except for Quebec where beneficiaries for registered funds are only recognized if they are named in a Will.

6.2 million Canadians contributed to an RRSP in 2022.⁵

Source: Statistics Canada

"You can absolutely save too much money in your RRSP," says Swan. While there's a tax benefit upon contribution, she notes that withdrawals are still taxed as regular income, albeit generally at a lower rate in retirement. This is important because, if the income is a result of dividends or capital gains (which are generally taxed more favourably), you would lose that tax benefit upon withdrawal. Moreover, Swan notes that if you contribute to your RRSP in excess, you'll still have to remove those funds from your RRIF at prescribed intervals and amounts. "The older you get, the more you'll be forced to withdraw from your RRIF — whether you need it or not," she says. The impact of higher taxes could also be compounded if your retirement income is supplemented by a pension or other investments.

Excess money in your RRSPs and RRIFs can also be an issue when you pass away, Swan says. "Let's say you die with $500,000 left in your RRIF, and you have designated your daughter as the beneficiary. She will receive $500,000 but the amount will also be reported as income on your final tax return. At that level, you will be taxed at a much higher rate." She adds that this is why many people do their best to drain their RRIFs in retirement. Ultimately, "If you're too focused on year-over-year planning, rather than lifetime planning, you may end up with significant tax consequences."

While RRSPs and TFSAs share some characteristics, they are different enough to warrant some consideration when it comes time to decide which is right for you (and at which time). TFSAs are often useful for short- to medium-term savings goals since there are typically no tax consequences on withdrawals. They can also be a good place to house an emergency fund for the same reason.

An RRSP — as the name implies — is most useful when saving for retirement because it defers tax until a time when the account holder is (presumably) in a lower tax bracket. RRSPs can also be used to help an individual buy a home through the Home Buyer's Plan or return to school through the Lifelong Learning Plan, though in both those cases withdrawals must be paid back to the RRSP over a defined period of time.

Ewing says that people use these registered accounts in a variety of ways based on their personal situations. That's all to say, there's not necessarily an exact science when it comes to investing in one vs. the other, though she emphasizes the importance of considering the whole picture before making decisions about which account to use. "Considerations that often go into the decision include personal savings goals, your source of income, (which can impact current and projected tax rates), and the rate of savings available as each account has its own contribution limits." She adds that it's also important to fully understand the features of each account type so you can make an informed decision about where and when to contribute. 

The total value of RRSP contributions across Canada in 2022 was $54 billion.⁶

Source: Statistics Canada

Swan says that spousal RRSPs allow Canadians to benefit from tax savings when one spouse earns considerably less than the other. Essentially, the spouse who earns more money is allowed to take advantage of their spouse's RRSP contribution room by making an RRSP contribution which reduces their annual taxable income. That's the first part. "There's also a benefit when it comes time to convert to a RRIF and the funds start to be withdrawn," she says. "The spouse in the lower tax bracket can then make the withdrawal." If executed properly, a spousal RRSP strategy can lead to less overall tax paid for the couple. It's also worth noting that withdrawing the income from a spousal RRIF can be delayed until the year following a younger spouse's 71st birthday if there's an age gap between spouses.

Sources:

¹TD Bank Group Newsroom. “TD Survey Finds Half of Canadians Know RRSPs and TFSAs are Critical to their Savings Strategy, But One in Four Don't Understand the Differences.” Nov. 28, 2024.

²Statistics Canada. “Registered retirement savings plan contributors and contributions, Canada, provinces and territories.” Apr. 29, 2024.

³TD Bank. “What are RRSPs and how do they work?” Jan. 27, 2025.

⁴TD Wealth. “TD Canadian index fund, td asset management, fund facts.” Jan. 27, 2025.

⁵Statistics Canada. “Registered retirement savings plan contributors and contributions, Canada, provinces and territories.” Jan. 27, 2025.

⁶ Ibid.