Registered Retirement Savings Plan

RRSP

Canada's primary tax-deferred retirement savings vehicle. Save for retirement while reducing your taxes today.

$32,490
2025 Maximum Limit
18%
Of Previous Year's Income
Age 71
Must Convert to RRIF

Professional Explanation

A Registered Retirement Savings Plan (RRSP) is Canada's primary tax-deferred retirement savings vehicle, designed to encourage Canadians to save for retirement while deferring tax obligations. When you contribute to an RRSP, the contribution amount is immediately tax-deductible, reducing your taxable income in that year. All investment growth—interest, dividends, capital gains—is tax-deferred until withdrawal, at which point withdrawals are taxed as regular income.

The Tax-Deferral Strategy:

The fundamental principle is that most people earn higher income during their working years and lower income in retirement. By deferring taxes on RRSP growth, you pay taxes later when you're in a lower tax bracket, resulting in net tax savings.

2025 Contribution Limits:

$32,490
Maximum annual limit
18%
Of previous year's earned income

• Carried-forward contribution room accumulates indefinitely

• Lifetime overcontribution allowance: $2,000 (beyond this = 1% monthly penalty)

• Can contribute until December of the year you turn 71

Key Features:

  • Tax-deductible contributions (immediate tax savings)
  • Tax-deferred growth on all earnings
  • Flexible investment options: cash, GICs, stocks, mutual funds, ETFs
  • Spousal RRSP option for income splitting
  • Home Buyers' Plan (HBP) allows $60,000 withdrawal for first-time home purchase (requires repayment)
  • Mandatory conversion to RRIF by December 31 of the year you turn 71

Withholding Taxes on Withdrawal:

  • • Up to $5,000: 10% withholding
  • • $5,001-$15,000: 20% withholding
  • • Over $15,000: 30% withholding
  • (Quebec has different rates: 14% flat + federal add-on)

Simple Explanation

Easy to Understand

Think of an RRSP as a special retirement savings account where the government says: "If you save money now, we'll give you a tax break this year, but you have to promise to pay taxes on it when you take it out later."

Here's how it works: You earn money, and normally you'd pay taxes on all of it. But if you put some of that money into an RRSP, you don't pay taxes on it right now—you get to subtract it from your taxes. Then, that money grows over many years without being taxed. When you turn old and retire (and probably earn less money), you take the money out and pay taxes on it then.

The benefit? You save more in taxes today, and by the time you have to pay taxes later, you might be in a lower tax bracket anyway.

You can put in 18% of what you earned last year (up to about $32,000). And you can use an RRSP for your first house too—you can borrow up to $60,000 from your RRSP without paying tax (but you have to pay it back).

Best For

  • Retirement savings
  • Tax reduction today
  • First-time home buyers (HBP)
  • Income splitting (Spousal RRSP)

Investment Options

  • Cash & savings accounts
  • GICs (Guaranteed Investment Certificates)
  • Stocks & ETFs
  • Mutual funds

Ready to Start Your RRSP?

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