Registered Retirement Savings Plan

What is RRSP

An RRSP is a retirement savings plan that you or your spouse or common-law partner can contribute early for retirement. Deductible RRSP contributions can be used to reduce your tax. The account can be used for investment, investment income can be tax deferred.

Features of RRSP

1. RRSP contributions are tax deductible and can help reduce the total income tax you pay.
2. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan.
3. You can extend the unused RRSP contribution amount in the year with lower income to use in the year with higher income in the future. This can help you save taxes when you are in a higher tax bracket.
4. If your income is higher than your spouse or common-law partner, making contributions to your spouse’s RRSP may help reduce the total amount of tax you pay.
5. Under the Home Buyers Program or Lifelong Learning Program (LLP), you can withdraw money from the RRSP to fund your first home purchase or education without paying taxes immediately.

Limit of RRSP

The amount relate to personal situation, and changes from year to year. Your personal limit can be found on the NOA tax refund form, or you can consult a CRA consultant.

Who can contribute to RRSP

People who have earned income, social insurance number, have filed taxes and under 71 years old are eligible to contribute to RRSP. Even if you are over 71 years old but your spouse is under 71 years old, you can still buy spousal RRSP for your spouse, which can be used to deduct your own income when filing taxes.

When is the best time to start contributing?

It varies from person to person, but generally speaking, the sooner the better! It is never too early to start investing for retirement. In fact, depending on the type of investment products you hold, investing early may allow you to enjoy tax-deferred compound interest returns.

When can I withdraw money?

As long as your funds are not in the lock-in plan, you can withdraw money from the RRSP at any time, but this withdrawal is considered as your income and you need to pay taxes at that year.
Usually, a part of the withdrawal will be withheld and remitted to the government as an advance payment for your income tax that year.
According to your taxable income in the year of withdrawal, it is more advantageous to postpone the withdrawal until the year when your taxable income decreases.