Registered Retirement Savings Plans (RRSP) in Canada

Saving for a comfortable retirement — there’s nothing particularly exciting or glamorous about it, but it’s something that should be on every Canadian’s to-do list. And that’s where a registered retirement savings plan (RRSP) is a wise choice.

What is an RRSP?

An RRSP is a savings plan that’s registered with the Canadian federal government. It provides tax benefits to help you save for your retirement.

There’s no minimum age requirement to open an RRSP, and you can make contributions to an RRSP up until the age of 71. The contributions are tax-deductible, so they can be used to reduce your annual income at tax time.

You also won’t pay any tax on the income you earn from the investments and savings in your RRSP until you make a withdrawal. And when you withdraw funds once you’ve retired, you’ll likely be in a lower income bracket at that time — which will again reduce your tax bill.

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How does an RRSP work?

Although an RRSP is a “savings” plan, it’s not just used to hold cash like a regular savings account. The money you contribute to an RRSP can be used to invest in cash, GICs, stocks, ETFs, mutual funds, bonds and more.

There’s a limit to how much you can contribute to RRSPs each year, but this amount can be rolled over to future years if you can’t make your maximum contributions right from the beginning. You can choose a managed RRSP, with investments chosen by a real-life or robo-advisor, or opt for a self-directed RRSP that you manage on your own.

When you retire, you can withdraw your savings all at once, or transfer the money to a registered retirement income fund (RRIF) or an annuity if you want a more sustainable stream of income.

RRSP contribution limits

There’s a limit to how much you can contribute to your RRSP each year, and your contribution limit is also known as your RRSP deduction limit. You can contribute 18% of your earned income up to the maximum amount specified by the Canada Revenue Agency each year — that maximum is $31,560 for 2024 and $32,490 for 2025. Any contribution room you don’t use can be rolled over to future years.

Your annual contribution limit remains the same no matter how many RRSPs you have. So if you have multiple RRSPs, you’ll need to keep track of all the contributions you make to avoid exceeding the annual limit. You’ll also need to remember to account for RRSP contributions from your employer as well as any contributions you make to a spousal plan.

If you exceed your contribution limit by more than $2,000, the amount you over-contribute (above this $2,000 limit) is taxed at a rate of 1% per month.

Your RRSP contribution limit

Let’s look at an example of how RRSP contribution limits work. In 2024, you contribute $20,000 to your RRSP out of a possible $31,560. As a result, the unused contribution room of $11,560 is rolled over to the following year.

The 2025 contribution limit is $32,490, so the maximum amount you can contribute in 2025 is $44,050 ($32,490 + $11,560). You can check your contribution limit on your most recent Notice of Assessment from the CRA or by logging in to your CRA online account.

RRSP withdrawal rules

Let’s look at some FAQs about RRSP withdrawals to help you understand how and when you can access your savings.

When can you withdraw from an RRSP?

You can generally withdraw funds from an RRSP whenever you want. But unless you’re making a withdrawal to pay for your education (under the Lifelong Learning Plan) or your first home (under the Home Buyers’ Plan), early withdrawals are taxed. You’ll have to pay withholding tax of 10-30% on any amount you take out of your RRSP early.

When you turn 65, you can start making withdrawals from your RRSP without paying withholding tax. However, remember that you will still need to pay income tax on the money you withdraw.

How can you make an RRSP withdrawal?

You can make an RRSP withdrawal when you reach retirement age in one of three ways:

1. Withdraw your funds as cash. You can withdraw the full amount of your RRSP in cash, which you can spend or save as you see fit. Just be careful when withdrawing large amounts since the money you take out will be taxed as income.
2. Purchase an annuity. You can use this money to purchase an annuity. This is an insurance plan that will give you a guaranteed income for life. The money you use to purchase the annuity won’t be taxed, but you may be taxed when you start to receive a regular income.
3. Transfer your RRSP into an RRIF. Similar to an annuity, you can transfer your RRSP into a registered retirement income fund (RRIF) without paying tax upfront. From there, you’ll receive a minimum amount each year (minus income tax) using a predetermined formula based on the value of the RRIF and your age.

What is RRSP withholding tax?

If you want to withdraw from your RRSP early, any withdrawal you make will be immediately subject to a withdrawal tax (also known as a “withholding tax”) proportional to how much you took out. RRSP withholding tax rates are outlined in the table below:

Amount of withdrawal	Tax rate (across Canada)	Tax rate (in Quebec)
Up to $5,000	10%	5%
Between $5,000 and $15,000	20%	10%
Over $15,000	30%	15%
If your marginal tax rate is higher than the RRSP withholding tax rate, you can also expect to pay additional income tax at the end of the year.

^{Source: “Tax rates on withdrawals” by Government of Canada}

What is the Home Buyers’ Plan (HBP)?

There are plans that are offered by the government that allow you to withdraw from your RRSP early without paying withdrawal tax. The HBP is one of them. Under the Home Buyers’ Plan, you can take money out of your RRSP to buy or build a first-time home for yourself or a family member with a disability. The withdrawal limit under this plan in 2024 is $60,000. You’ll have up to 15 years to repay this money back into your RRSP without being taxed.

What is the Lifelong Learning Plan (LLP)?

The LLP is another plan offered by the government that allows you to withdraw money from your RRSP to pay for full-time postsecondary education for yourself or your partner. This money can’t be used to pay for your children’s schooling. In 2024, the maximum yearly withdrawal limit is set at $10,000 per year, up to a total limit of $20,000. You’ll have 10 years to repay this money back into your plan without being taxed.

RRSP eligible investments

There are two investment options that you can take advantage of in an RRSP: fixed-income assets and equities. Fixed-income assets are bonds, guaranteed investment certificates and cash held in an investment savings account. Examples of equity investments are publicly-traded stocks and exchange traded funds (ETFs).

Examples of RRSP investment options

The following assets and equities are RRSP eligible investments:

• Stocks
• ETFs
• Mutual funds
• Bonds
• GICs
• Income trusts
• Mortgage loans
• Foreign currency
• Labour-sponsored funds

RRSP fees

Fees vary depending on the provider you choose. Some charges to watch out for include:

• Account opening fees. Though not common, some financial institutions will charge a fee to open an account.
• Annual account fees. Some RRSPs come with annual account fees, but others don’t. If a fee applies, it may be around the $100 – $150 mark.
• Investment fees. Fees will also depend on the types of investments you choose. For example, brokerage fees apply if you invest in stocks, while mutual funds come with management fees.

Check the terms and conditions closely for full details of the RRSP fees you’ll need to pay.

Pros and cons of RRSPs

Pros

• Contributions are tax deductible. You can claim your contribution as a tax deduction, which means you’ll lower your taxable income and pay less income tax.
• Tax-free interest. You won’t pay taxes on any interest you earn, which is one of the biggest RRSP benefits available.
• Regular income for retirement. You’ll be able to transfer your savings into an RRIF or an annuity when you retire to guarantee a steady income.
• Education and home-buying plans. You can use part of your RRSP to pay for your education or your first home (as long as you eventually repay the amount you take out).

Cons

• Withdrawals are taxed as income. The taxman still cometh eventually, so you’ll be required to pay income tax on any withdrawals.
• Penalties for early withdrawals. You’ll have to pay withholding tax of up to 30% if you want to make an early withdrawal.
• Limits on contribution room. You’ll only be able to contribute a certain amount each year and you’ll need to pay penalties for making an RRSP over-contribution.

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How to open an RRSP

Opening an RRSP is easy. Check out some of the most commonly asked questions and who’s eligible below.

• How do I open an RRSP? Fill out an application with the provider of your choice to sign up for an account. You’ll need to provide personal information such as your name, address, birth date, Social Insurance Number (SIN) and contact details.
• Who can open an RRSP? Anyone can open one for themselves or their dependents, and there’s no minimum age to be eligible. You can hold one in your name until you reach the age limit of 71 years old, at which point you’ll need to withdraw your funds or transfer your account to an annuity or RRIF.
• Where can I open an account? You can open an account with any eligible providers that offer RRSPs. This can include big banks, credit unions, digital banks, insurance companies and dedicated online providers.

Bottom line

RRSPs offer one of the best ways to save for retirement in Canada. They let you earn tax-free interest on your savings and you can take advantage of tax breaks for every dollar you invest. The main downside of these funds is that it can be difficult to access the money you save until you retire without paying hefty penalties.

Frequently asked questions

• What happens to my RRSP when I retire?

  Your contributions will remain in the fund until you're 71 years old regardless of your employment status. From there, you'll be required to start withdrawing the money. You can either withdraw it as a lump sum of cash or transfer it over to an annuity or RRIF to get paid a steady income in your retirement years.

• How many RRSP accounts can I have?

  There is no limit to the number of RRSPs you can have, but there is a limit on how much you can collectively contribute to your RRSPs.

• Is there a minimum balance required for an RRSP?

  No, there's no minimum balance required to open an RRSP.

• Can I have an RRSP with different banks/institutions?

  Yes, as long as you don't over-contribute, you can hold RRSPs with different banks or financial institutions.

• What's the difference between an RRSP and a TFSA?

  RRSPs are used to save specifically for your retirement while TFSAs are used to save for just about anything you want. Both let you earn tax-free interest but each comes with its own set of benefits and drawbacks. In particular, RRSPs offer less liquidity but let you defer interest to get tax breaks in high-income-earning years. TFSAs offer easy withdrawals but don't let you claim your contributions as tax deductions. Learn more about RRSPs vs TFSAs.

• What's the difference between an RRSP and an RSP?

  An RRSP is a specific retirement savings plan, while the term RSP (Retirement Savings Plan) can refer to a number of retirement vehicles (including an RRSP, TFSA, RPP, etc.).

• What's the main difference between an RRSP and a Registered Pension Plan (RPP)?

  An RRSP is an individual retirement plan while an RPP is an employer-directed pension plan. Although both have the same goal of providing retirement income, an RPP is established by companies to provide pensions to their workers.

• Can you transfer an RRSP to a TFSA?

  Unfortunately, you can't transfer money from an RRSP to a TFSA without paying a tax penalty on any amount you transfer. This is because RRSPs give you a tax deferral while TFSAs do not.

• Are RRSPs worth it?

  There are lots of good reasons why you should consider opening an RRSP, especially if you earn a high income and you want a tax break. If you want to maintain access to your funds and you would prefer to just earn tax-free interest with no tax deferrals, you can look into investing in a TFSA.

• What is a spousal RRSP?

  A spousal RRSP can be used by married or common-law partners as a way to lower their collective taxes upon retirement. Typically, the higher-earning partner will contribute to the spousal RRSP, which is registered under the name of the partner making less income. The lower-income spouse makes the investment decisions and is the only one who can withdraw from the account. Before retirement, the contributor to the account deducts the contributions to the spousal RRSP from their taxable income just as they do for their individual account. It's important to know that your contribution limit does not change if you are contributing to both an individual and spousal RRSP. Instead, the annual contribution limit is spread among your RRSPs.

• What is a group RRSP?

  A group RRSP is established by a company for its workers, with contributions deducted from their paycheques.

• How can I calculate my RRSP contribution room?

  You can calculate your RRSP contribution room by multiplying your pre-tax income by 18%. This means if you make $60,000 per year x 18%, then your contribution room for the year would be $10,800. You can also find out how much contribution room you have for the year in question on your previous year's Notice of Assessment.

  For high-income earners, the maximum contribution is set by the Canada Revenue Agency. For example, the maximum RRSP contribution for 2024 is $31,560. This means that if you earn a high salary, you can only claim the maximum amount even if it works out to less than 18% of your income.