What is an RRSP?

A registered retirement savings plan (RRSP) is a personal savings account that has special tax advantages. RRSPs can hold a variety of qualifying investments, including treasury bills, guaranteed interest products, mutual funds, segregated fund contracts, bonds and equities. As well, some types of investment contracts, such as registered guaranteed investment fund contracts, are themselves RRSPs.

An RRSP is such a powerful savings vehicle because your contributions are tax deductible, and the taxes on any investment growth are deferred until you take your money out. Tax-deductible contributions mean you'll have more of your income available for your current needs, even while you're saving for the future. And tax-deferred investment growth (interest, dividends, capital gains) keeps more of your money working for you.

When you withdraw money from your RRSP, it is taxed at your tax rate at the time you take it out. But if you're like most people, you'll be retired when you start to take withdrawals, so your tax rate will likely be lower than when you were employed, and you'll be able to keep more of your hard-earned money.

You should consider an RRSP if:

  • You want to save money for retirement and be able to deduct your contributions from this year's income
  • You're looking to reinvest your tax savings
  • You want to use your tax savings to pay down non-tax-deductible debt, like your mortgage

Types of RRSPs:

Individual RRSPs

  • This is an RRSP registered in your own name, and to which only you contribute.
  • The amount you contribute to your RRSP is tax deductible. You pay tax when you withdraw your money; if you’re in a lower tax bracket then (which will presumably be the case if you’re retired), your eventual tax bill will be lower.
  • If you transfer the value of your registered company pension into an individual RRSP after leaving your employer, that RRSP is “locked in,” meaning you usually can’t withdraw money from it until you retire.

Spousal RRSPs

  • This is an RRSP registered in the name of one spouse, to which the other spouse contributes.
  • Whether you contribute to your own RRSP or to your spouse’s spousal RRSP, your contribution counts against your own RRSP contribution limit. Your spouse’s contribution limit is not affected.
  • If you contribute to your spouse’s spousal RRSP, and your spouse withdraws money from it within 3 calendar years, you pay the tax, not your spouse.
  • Once you retire, you and your spouse can take income from your respective retirement funds and be taxed at an individual rate.

Group RRSPs

  • This is an RRSP set up in the name of a group (such as the employees of a company or the members of a professional organization).
  • Members of a group RRSP typically benefit from lower administration and management fees than would be applied to an individual plan.
  • You may also be able to contribute through payroll deductions, which allows you to invest throughout the year.
  • It’s important to remember that you are responsible for staying under your contribution limit.

RRSP contribution limit

RRSP contributions can lead to good news at tax time, because they’re deductible. But everything has its limits, including your RRSP. The CRA tells you your RRSP contributing room in the tax assessment you get after filing your tax return each year. Although you could calculate your contributing room by yourself, it’s easier to rely on the CRA’s calculation. Generally, you’re allowed to contribute up to 18% of your previous year’s earned income, to a maximum set each year by the Income Tax Act and Regulations, plus any unused contributing room carried forward from prior years.

Learn more about RRSP contribution limits

RRSP vs. TFSA: What’s the difference?

Confused about the best savings option for your needs? You’re not alone. Both an RRSP and a TFSA provide unique tax advantages.

Learn more about RRSPs vs. TFSAs


Make a Sun Life Financial RRSP a key part of your retirement plan

Starting and building an RRSP is an important step towards securing your financial future – and professional guidance can be a valuable part of your decision-making. An advisor understands how RRSPs work and can show you how to structure your contributions and choose your investments to make the most of the benefits offered by this powerful savings vehicle.

Talk to your advisor or find an advisor near you to learn how RRSPs fit into Money for Life, Sun Life Financial's customized approach to your financial and retirement planning.

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