A Registered Retirement Savings Plan, or RRSP, is a Canadian tax-sheltered account that lets you defer income tax on money set aside for retirement. You deduct contributions from your taxable income the year you make them, your investments grow inside the plan without being taxed along the way, and you pay tax only when you eventually withdraw the funds. For the 2025 tax year, the contribution limit is $32,490 or 18% of your prior year’s earned income, whichever is less. Because most people fall into a lower tax bracket after they stop working, an RRSP tends to reduce the total tax you pay over your lifetime compared with saving in a regular account.
How the Tax Deferral Works
The RRSP shifts your tax bill in time. When you contribute, you subtract that amount from your taxable income for the year. Earn $90,000 and contribute $12,000, and you report $78,000 in taxable income on your return. That deduction lowers what you owe right away.
Inside the account, interest, dividends, and capital gains compound without triggering any tax. In a non-registered account, you would owe tax on those earnings every year, which drags on your growth. The RRSP removes that drag for as long as the money stays in the plan.
The trade-off arrives later. Every dollar you pull out counts as taxable income in the year of withdrawal. The bet is that your rate in retirement will be lower than your rate during peak earning years, and for most people that bet pays off.
Contribution Room and Deadlines
Your annual RRSP room equals 18% of the previous year’s earned income, up to a dollar cap the Canada Revenue Agency sets each year. For 2025 the cap is $32,490.1Canada Revenue Agency (CRA). How Contributions Affect Your RRSP Deduction Limit If you belong to a registered pension plan through your employer, a pension adjustment reduces your available room to reflect the retirement benefits already building there.
Unused room carries forward indefinitely. If your limit is $15,000 and you contribute $10,000, the remaining $5,000 stays available in later years. Room has been accumulating since 1991, so some people have a substantial carry-forward balance to draw on in a high-income year. Your Notice of Assessment from the CRA shows your exact available room after each return is processed.2Canada Revenue Agency (CRA). Where You Find Your RRSP Deduction Limit
You are not locked into a December 31 deadline. Contributions made in the first 60 days of a calendar year can be claimed on either that year’s return or the previous year’s. For the 2025 tax year, the deadline is March 2, 2026.3Canada Revenue Agency (CRA). Important Dates for RRSPs, HBP, LLP, FHSAs and More
Over-Contributions
The CRA allows a $2,000 lifetime buffer above your deduction limit. Cross your limit by up to that amount and nothing happens, though you cannot deduct the excess. Go past the buffer and you owe a penalty tax of 1% per month on the amount above the $2,000 threshold, charged every month the excess sits in the plan.4Canada Revenue Agency (CRA). Excess Contributions That adds up quickly, so withdrawing the excess promptly is the safer response.
Types of RRSP Accounts
An individual RRSP is the standard version. You open it, you fund it, and you choose the investments. If you want direct control over specific holdings, a self-directed RRSP at a brokerage lets you hold a wide range of investments in one account and manage the mix yourself.
A spousal RRSP lets one partner contribute to an account owned by the other spouse or common-law partner. The contributor claims the deduction and uses their own room, but the recipient owns the assets and eventually makes the withdrawals. The point is income splitting in retirement: if one partner earns much more, shifting some savings into the lower earner’s name means withdrawals get taxed at a lower rate. There is a catch. If the recipient withdraws money within three calendar years of the last contribution the other partner made, the withdrawal is attributed back to the contributor as their income, cancelling the split.5Canada Revenue Agency (CRA). Withdrawing From Spousal or Common-Law Partner RRSPs
Group RRSPs are set up through an employer, usually with automatic payroll deductions. Some employers match part of your contributions. The account still belongs to you and follows the same tax rules as any other RRSP, but payroll deductions let your employer reduce withholding tax on each paycheque rather than making you wait for a refund at tax time.
What You Can Hold Inside an RRSP
RRSPs can hold a broad range of qualified investments: cash and savings deposits, publicly traded stocks, bonds, mutual funds, exchange-traded funds, guaranteed investment certificates, government and corporate debt, and certain gold and silver products, among others.6Canada Revenue Agency (CRA). Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, TFSAs
Holding a prohibited investment triggers severe penalties. The CRA levies a special tax equal to 50% of the fair market value of the prohibited investment at the time it was acquired, plus a separate 100% tax on any income earned or capital gains realized on that investment while it sat in the plan.7Canada Revenue Agency (CRA). Tax Payable on Prohibited Investments Those rules exist to stop people from using the RRSP’s shelter for private company shares or related-party arrangements the program was never meant to cover.
Taking Money Out
You can withdraw from your RRSP at any time, but two costs make casual withdrawals expensive. First, the withdrawal is added to your taxable income for the year. Second, the contribution room you used to make that deposit is gone for good. Unlike a TFSA, where withdrawn amounts get added back the next year, an RRSP withdrawal is a one-way door.
Withholding Tax
Your financial institution withholds tax at source before you receive the funds. For Canadian residents outside Quebec:
- Up to $5,000: 10% withheld
- $5,001 to $15,000: 20% withheld
- Over $15,000: 30% withheld
Quebec residents pay lower federal withholding rates on those same tiers but face additional provincial withholding.8Canada Revenue Agency (CRA). Tax Rates on Withdrawals The withheld amount is not necessarily your final tax bill. It is a deposit with the CRA. When you file, the withdrawal stacks on top of your other income, and the actual tax owed depends on your marginal rate. Withdraw a large sum in a year you are still earning a full salary and the withholding may fall well short of what you owe.
Home Buyers’ Plan
The Home Buyers’ Plan lets you withdraw up to $60,000 from your RRSP to buy or build a qualifying home.9Canada Revenue Agency (CRA). The Home Buyers’ Plan No withholding tax applies at the time of withdrawal. You then have 15 years to repay the full amount back into your RRSP. Each year the CRA calculates your minimum repayment and shows it on your Notice of Assessment. Miss a payment or pay less than required, and the shortfall gets added to your taxable income for that year.10Canada Revenue Agency (CRA). How to Repay the Amounts Withdrawn From Your RRSPs Under the Home Buyers’ Plan
Lifelong Learning Plan
The Lifelong Learning Plan lets you withdraw up to $10,000 per year, to a total of $20,000, to pay for full-time education or training for yourself or your spouse.11Canada Revenue Agency (CRA). Lifelong Learning Plan Withdrawals No withholding applies at withdrawal. You have 10 years to repay the full amount, with annual minimums calculated from the outstanding balance and the years remaining. Missing a repayment adds the shortfall to your taxable income for the year.12Canada Revenue Agency (CRA). Lifelong Learning Plan
What Happens at Age 71
Your RRSP must be closed by December 31 of the year you turn 71. You cannot simply leave it open. At that point you have three options:13Canada Revenue Agency (CRA). Matured RRSP Including Commutation Payments
- Convert to a Registered Retirement Income Fund (RRIF), which keeps your investments growing tax-deferred but requires you to withdraw a government-set minimum percentage each year. The minimum starts at 5.28% at age 72 and rises with age, reaching 20% at 95 and beyond.
- Buy an annuity. You hand your RRSP balance to an insurance company, which pays you a guaranteed stream of income for life or for a fixed period. Each payment is taxable.
- Take a lump sum. The full balance counts as taxable income that year, which usually pushes you into the highest bracket and produces a large tax bill.
Most people choose the RRIF because it preserves tax-deferred growth on whatever remains in the account while providing regular income. If you fail to convert or close your RRSP by the deadline, the entire balance becomes taxable income in that year.
If the Account Holder Dies
When an RRSP holder dies, the CRA generally treats the full fair market value of the plan as income on the deceased’s final tax return, which can produce a large tax bill for the estate.14Canada Revenue Agency (CRA). Prepare Tax Returns for Someone Who Died – Registered Retirement Savings Plan
The major exception is a rollover to a surviving spouse or common-law partner. If the assets are transferred directly to the survivor’s own RRSP, RRIF, or eligible annuity before the end of the year following the year of death, no tax is triggered on the deceased’s return. The surviving spouse reports the amount on their own return and claims an offsetting deduction for the transfer, effectively deferring tax until they withdraw the money themselves.14Canada Revenue Agency (CRA). Prepare Tax Returns for Someone Who Died – Registered Retirement Savings Plan
If the RRSP grows in value between the date of death and the date the funds are actually distributed, that additional growth is taxable to whoever receives it. Naming a spouse as the direct beneficiary on the RRSP contract itself, rather than routing everything through the estate, simplifies the rollover and avoids probate fees in most provinces.
Opening an Account
You can open an RRSP at a bank, credit union, insurance company, or investment brokerage. You need a valid Social Insurance Number, and the institution will verify your identity and residency. The process is straightforward and can often be completed online.15Canada Revenue Agency (CRA). Setting Up an RRSP
Keep the age-71 limit in mind. You can open and contribute at any age as long as you have earned income and room, but the plan must be converted or closed by December 31 of the year you turn 71. One option for those still earning income past that age: if your spouse is younger than 71, you can keep contributing to a spousal RRSP using your own earned income and deduct those contributions on your return.16Canada Revenue Agency (CRA). Contributing to Your Spouse’s or Common-Law Partner’s RRSPs