Registered Retirement Savings Plan

Registered Savings Plans

Investing in registered plans such as a TFSA or an RRSP is a wise strategy for Canadians to save their money and grow their wealth. These plans are considered “registered,” providing tax benefits that can be advantageous. Moreover, a diverse range of investments, including GICs and mutual funds, can be held within these registered plans.

A smart investment for your financial future.

What is an RRSP?

A Registered Retirement Savings Plan (RRSP), also known as RSP, is a government-registered investment account that aids Canadians in saving for retirement. Contributions made to an RRSP, up to a certain limit, can be deducted from the year’s income, potentially resulting in a decrease in tax liability.

The investment income generated within an RRSP grows on a tax-deferred basis, which means that taxes on the retirement savings are not paid until they are withdrawn. Unlike non-registered investments, the taxes on the investment income earned within an RRSP are postponed until withdrawal.

Alternative Uses of RRSP

Apart from retirement savings, RRSPs can be utilized in other tax-efficient ways.

One such method is the Home Buyers’ Plan, which enables individuals to borrow up to $35,000 from their RRSP for their first home purchase.

Furthermore, the Lifelong Learning Plan (LLP) permits individuals to withdraw up to $10,000 per year from their RRSP to finance educational expenses.

Alternative Uses of RRSP

Tax Deductions

When you contribute to your RRSP, the amount is tax-deductible and can result in a reduction of the total taxes owed.

Tax Deferred Savings

The investment earnings such as interest, dividends, or capital gains generated within your RRSP are not subject to taxes.

Unused Contributions

Unused contributions from previous years can be carried forward, providing flexibility for individuals as their income grows over time.

A Variety of Investment Options

You can build your RRSP portfolio using various investment and savings options, such as GICs, mutual funds, and other available choices.

Spousal RRSP Income Splitting

If one spouse has a higher income than the other, contributing to a spousal RRSP can assist the higher earner in reducing their taxes.

Government Programs

The Home Buyers Plan and Lifelong Learning Plan enable individuals to borrow funds from their RRSP without immediate tax implications.

RRSP Contribution Limits

Your RRSP contribution or deduction limit, which can be found on your previous year's Notice of Assessment, indicates the maximum amount you can contribute to your RRSP in a given year.

The maximum contribution amount is 18% of your earned income from the previous year, up to a limit of $29,210 for 2022 ($30,780 for 2023), after adjusting for any pension amounts.

Who is eligible to make contributions to an RRSP?

Canadian residents with employment income reported on their tax return are eligible to make contributions to an RRSP, regardless of their age. However, contributions to an RRSP can only be made until the end of the year in which an individual turns 71 years old. Subsequently, the RRSP must be converted to a Registered Retirement Income Fund (RRIF).

What happens to unused RRSP contribution room?

Unused RRSP contribution room can be carried forward indefinitely if an individual doesn't make the maximum allowable contribution each year. This can be advantageous, particularly during years when an individual's income is higher, and they can contribute more.

Although it may make sense to borrow for RRSP contributions using a loan or line of credit in some situations, setting up automated contributions is the simplest way to contribute to an RRSP.

RRSP Withdrawal Rules

Withdrawals from an RRSP are allowed, but only for those funds that are not in a "locked-in" type of RRSP. However, any withdrawals made are subject to withholding tax and are included as income for the year, which means income tax must be paid on the amount withdrawn.

There are two ways to withdraw from an RRSP without incurring tax implications: the Home Buyers' Plan and the Lifelong Learning Plan.