What is an RRSP? 

A registered retirement savings plan (RRSP) is a type of savings account specially designed to help Canadians save for their retirement.

It comes with tax advantages that let you save and grow your money now, while deducting your RRSP contributions from your current tax bill. 

When it’s time to take your money out, you’ll pay taxes on the withdrawal amount, but likely at a much lower rate than what you’d pay today.  

How does an RRSP work? 

Any contributions into your RRSP can help you decrease your current taxable income. This means you won’t have to pay taxes on your contributions or any investment growth until you withdraw funds.

For most Canadians, withdrawing from your RRSP at a later point in life – in your 60s or 70s – means paying much less tax.

Think of it this way: you’ll probably be in a much lower tax bracket when you’re retired in your 60s or 70s. So, you’ll be paying less tax when you withdraw from your RRSP at that age, all the while helping to lower your current tax bill. 

Plus, you can hold a variety of investments in your RRSP, like:

  • stocks,
  • bonds, 
  • segregated funds,
  • GICs, and 
  • mutual funds.

How do you benefit from an RRSP? 

When you retire, you can use funds from your RRSP to cover any expenses, including:

  • medical or health-related costs (e.g. prescription drugs, health insurance, etc.),
  • where you’ll live,
  • travel and vacation plans, 
  • what hobbies you may take up and more.

Retirement can be a great time to focus on yourself and enjoy your leisurely years. But it also comes with a price. An RRSP can help you cover the costs that come with retirement. 

RRSP contributions

Your RRSP contribution limit for 2021 is 18% of earned income you reported on your tax return in the previous year. That’s up to a maximum of $27,830. 

This limit also includes any unused contribution room you have from earlier years. 

And remember, any money put into an RRSP, up to the limit, reduces your taxable income for that year.

Your RRSP contribution limit is calculated each year and will appear on the Notice of Assessment you receive from the Canada Revenue Agency (CRA) after filing your taxes. You can also see your notice of assessment online at the CRA’s “My Account for Individuals” page.

Remember, the money you earned in the previous year is crucial to calculating how much you can contribute to your RRSP for the current tax year. And your yearly RRSP contributions can result in a substantial tax refund that you can use to:  

  • reinvest in your RRSP, 
  • pay down debt, or 
  • invest in another tax-sheltered vehicle such as a tax-free savings account (TFSA).

All your RRSP contributions are tax deductible. This means you can reduce the amount of your taxable income. For example, let’s say you earned $50,000 last year and qualify for $10,000 in tax deductions. That means you’ll only have to pay taxes on $40,000 of your income.

You can contribute to an RRSP whenever you want. But the deadline for making a contribution that will affect your tax bill for any given year is 60 days after the end of that tax year. The date falls in early March of the following year. 

That’s OK. This just means you’ll have unused RRSP contribution room to carry forward. You can open and contribute to an RRSP at any time of the year. Just make sure you don’t exceed your contribution limit.

Get more answers to your RRSP contribution questions.

 RRSP withdrawals and taxes 

RRSPs offer tax-deferred savings. This means you won’t have to pay tax on any investments you have within an RRSP until you start withdrawing funds.

You can, but you’ll pay taxes every time you withdraw funds from your RRSP. 

The amount of tax you pay depends on how much you withdraw and your income bracket.  

As an example, let’s say you start withdrawing money from your RRSP after you retire at age 65. At this point in your life, you may be in a lower tax bracket. This means you’ll be paying less tax than you would if you with withdrew money from your RRSP in your 30s or 40s. That’s why Canadians are often encouraged to wait until they retire to start withdrawing from their RRSPs. 

Early withdrawals from RRSPs come with some major costs, including:

  • loss of tax-sheltered compounding*,
  • facing withholding tax, and
  • permanent loss of contribution room.

Learn more about the hidden costs of early RRSP withdrawals.

*A tax-sheltered account lets interest grow within your account without being taxed until you make withdrawals. Compounding is what happens when your investment earnings or savings account interest is added to your original contribution.

But there are certain situations where early withdrawals from an RRSP may provide benefits. The government treats withdrawals to buy your first home (RRSP Home Buyers’ Plan) or finance your education (RRSP Lifelong Learning Plan) differently from other early RRSP withdrawals. Funds borrowed from the Home Buyers’ Plan and Lifelong Learning Plan are not taxable, as long as you repay the money to your RRSP with specific timelines.

See our RRSP FAQs for more answers to your questions. 

RRSPs after retirement, transfers, and death

It depends how old you are when you retire. You must move your money out of your RRSP by December 31 of the year you turn 71. After that, you can convert your savings to another registered account like a registered retirement income fund (RRIF), purchase an annuity, or withdraw your funds. 

Depending on how your registered accounts are set up, they may be treated differently when you die.

In general, at the time of death, the owner of the RRSP is deemed to have cashed out their RRSP assets.

However, let's say you've named your spouse as the beneficiary of your RRSP. In this case, your RRSP can be rolled over to your spouse after your death. This roll-over would be tax-deferred, meaning your spouse won't have to pay taxes until they withdraw funds. Keep in mind that your spouse does not require additional RRSP contribution room when the rollover happens. Talk to a Sun Life advisor to learn more.

Your child will receive the full value of your RRSP funds. But the entire value of the RRSP will also be included as taxable income in the final tax return that will be filed when you die. Please note that generally, your estate is responsible for the associated tax liability. Speak to a lawyer or tax professional to better plan for your situation.

There is no way to transfer your RRSP account to someone else. You also can’t transfer money from your RRSP to someone else’s RRSP. 

Open an RRSP today 

Ready to start investing and saving? Our advisors are ready to help you open your RRSP. They can help you make well-informed financial decisions and maximize your savings. They can also address any questions and concerns you may have.

Enter your postal code to find an advisor near you.

Types of RRSPs

Here are three common types of RRSPs you’ll come across.

Regardless of what type of RRSPs you have and how many you have, you’re still responsible for staying under your contribution limit. 

What is an individual RRSP?

It’s an RRSP registered in your own name.

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Who can contribute to an individual RRSP?

Only you can contribute to it. 

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How much can I contribute to an individual RRSP?

18% of your earned income plus any unused room from earlier years.

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Are contributions to individual RRSPs tax deductible?

Yes, these RRSP contributions are tax deductible. 

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Who can make withdrawals to individual RRSPs?

Only you can make withdrawals

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What is a spousal RRSP?

A spousal RRSP is an RRSP that’s set up in the name of one spouse.

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Who can contribute to a spousal RRSP?

The spouse whose name is not on the RRSP. For example, if you were to set up a spousal RRSP in your partner’s name, then only you can contribute to it.

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Do my contributions to a spousal RRSP count towards my own contribution limit?

Yes, your contributions to your spouse’s spousal RRSP counts against your own limit. But your spouse’s contribution limit isn’t affected.

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Who can make withdrawals from a spousal RRSP?

The spouse whose name is in the RRSP.

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Who gets the tax deduction for a spousal RRSP?

The spouse that contributes to the spousal RRSP gets the tax deduction.

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What is a group RRSP?

A group RRSP is an RRSP that’s set up in the name of a group, such as the employees of a company or members of a professional organization. For example, if you have an RRSP through your employer or group benefits, then that’s considered a “group RRSP.”

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Who can contribute to a group RRSP?

You and your employer can contribute to a group RRSP.

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How much can I contribute to a group RRSP?

18% of your earned income plus any unused room from earlier years.

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Can I contribute to a group RRSP through payroll deductions?

Yes. This lets you invest throughout the year, but you’ll be responsible for staying under your contribution limit.

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Who can make withdrawals from a group RRSP?

Only you. 

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Other than retirement, what else can you use an RRSP for? 

RRSPs are ideal for retirement savings, but they also come with other benefits that can help you right now. Here are two ways you can borrow from your RRSP to help pay for a new home or schooling: 

How much can I borrow from an RRSP Home Buyer’s Plan?

Up to $35,000 per person.

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Is there a tax penalty for withdrawing from an RRSP Home Buyer’s Plan?

No. 

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When do I have to pay back the loan on an RRSP Home Buyer’s Plan?

Within 15 years.

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Are there specific rules to keep in mind with the RRSP Home Buyer’s Plan?

Yes, you or your spouse must not have owned a home in the past 5 years.

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Where can I learn more about the RRSP Home Buyer’s Plan?

A Sun Life advisor can provide more detailed information about the RRSP HBP. Connect with an advisor near you

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How much can I borrow from an RRSP Lifelong Learning Plan?

Up to $10,000 per calendar year for a 4-year period (to a maximum of $20,000).

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Is there a tax penalty for withdrawing from an RRSP Lifelong Learning Plan?

No. 

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When do I have to pay back the loan on an RRSP Lifelong Learning Plan?

Within 10 years.

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Are there specific rules to keep in mind with the RRSP Lifelong Learning Plan?

You can use this money to pay for the education of you or your spouse or your common-law partner (but not your child).

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Where can I learn more about the RRSP Lifelong Learning Plan?

A Sun Life advisor can provide more detailed information about the RRSP LLP. Connect with an advisor near you

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More about RRSPs from Sun Life:

* This information is meant for educational and illustrative purposes only.  It is not meant to be tax advice.  You should consult a tax professional for specific tax advice.