Last updated: January 9, 2024 | Reviewed by Stuart Dollar
What is an RRSP?
A Registered Retirement Savings Plan (RRSP) is a type of savings account. It helps Canadians save for their retirement. One of the key advantages to an RRSP is that you may claim a deduction for your contribution. RRSPs can also help people fund their education and buy their first home.
Benefits of an RRSP
RRSPs come with advantages that let you save and grow your money:
- Contributions entitle you to a deduction that you can use to reduce your income and lower your taxes.
- Your RRSP contributions and investment income are tax-deferred while they remain in the RRSP.
- Your RRSP can help pay for a new home or schooling.
Learn more about how else you can use an RRSP - You have a wide range of investment options.
What is an RRSP?
Simply put, a Registered Retirement Savings Plan, or RRSP, is a type of savings account that helps Canadians save for their retirement.
How does an RRSP work?
You can hold a variety of investments in your RRSP, like:
- stocks,
- bonds,
- GICs, and
- mutual funds.
Any contributions or growth within your RRSP help you defer taxable income. This means you can defer taxes this year when you contribute, and defer taxes on any investment growth, until you choose to access the funds. For most, withdrawing from your RRSP at a later point in life means paying less tax.
Think of it this way: you’ll probably be in a 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.
What’s your RRSP contribution limit?
Your yearly contribution limit is 18% of your earned income, plus unused room from earlier years. Any money you 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 after filing your taxes.
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Helpful RRSP numbers to know
$30,780
2023 RRSP deduction limit 1
$35,000
Maximum amount you can borrow from an RRSP to buy your first home.
$10,000
Maximum amount you can withdraw from an RRSP per calendar year to help pay for training or education (up to a maximum lifetime of $20,000).
71
By the end of the year you turn age 71 you must convert your RRSP to a RRIF or annuity, or withdraw all your RRSP funds 2. Contributions to an RRSP may not continue after the end of that year.
1 Or 18% of your earned income the previous year – whichever is lower plus unused contribution room from previous years.
2 Connect with your Sun Life advisor and tax advisor to discuss the most suitable option for you.
Need help getting started with an RRSP?
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How does an RRSP work?
Here’s how an RRSP can help you save for retirement:
Open an RRSP.
After you open an RRSP, you can fund it with different investment options including segregated funds, mutual funds, GICs, stocks, bonds and more. Your contributions and investment income can grow in an RRSP without being taxed until you withdraw money from the account.
Contribute regularly for tax-deferred growth.
With RRSPs, you won’t have to pay taxes on any investments growing in the account – at least, not until you start withdrawing funds from it.
Plus, your contributions are tax deductible. This means that you can use your contributions to lower your current taxable income if you have contribution room available.
However, if you want to use your RRSP contributions to reduce your tax bill, you’ll have to make sure you make all your contributions by a specific deadline.
Enjoy a lower tax bill in retirement without compromising your lifestyle.
RRSPs can help you strategically plan your taxes so that you can save on taxes both during the:
- Contribution phase, where you put in money at a higher rate,
- Withdrawal phase, where you can enjoy a lower tax bill without compromising your lifestyle.
In retirement, you’ll likely be in a lower tax bracket, as you need less money to pay for large expenses like a mortgage – assuming you’ve paid it off before you retire. Typically, you’ll also no longer need to be saving for retirement. In addition, if you have any children, they’ll have started their own independent lives, so you won’t be paying for their expenses, like education. This means you’ll likely have to pay a smaller tax bill too when you withdraw from your RRSP.
By the end of the year you turn age 71, you must convert your RRSP to an alternate income option.
By the end of the year you turn age 71, you can no longer own an RRSP. Before this happens, you can:
Convert your RRSP to a Registered Retirement Income Fund (RRIF). You don’t pay tax when you convert from an RRSP to a RRIF.
Purchase a payout annuity. You don’t pay tax when you use RRSP money to buy a payout annuity.
Withdraw all your RRSP funds. If you withdraw funds from your RRSP, the withdrawn amount will be subject to withholding tax and will be part of your taxable income for the year of the withdrawal.
RRSP contributions and withdrawals
RRSP contributions
You’re allowed to contribute up to 18% of your previous year’s earned income (up to a maximum amount set each year by the Income Tax Act and Regulations). You can also carry forward any unused contribution room from previous years .
RRSP withdrawals and taxes
RRSPs offer tax-deferred savings. This means you won’t have to pay tax on your contributions, or on any income earned on those contributions, until you start withdrawing funds.
Other types of RRSPs
RRSPs are ideal for retirement savings, but they also come with other benefits that can help you right now. Here are 2 ways you can borrow from your RRSP to help pay for a new home or schooling: Home Buyers' Plan and Lifelong Learning Plan.
Apart from personal RRSPs, which you can set up in your own name, there are 2 additional types of RRSPs you’ll come across: spousal RRSPs and group RRSPs. But regardless of what type of RRSPs you have and how many you have, you’re still responsible for staying within your contribution limit.
Home Buyers’ Plan (HBP)
The HBP lets you withdraw up to $35,000 from your RRSP to buy or build your first home in Canada – either for yourself or a relative with a disability.
Lifelong Learning Plan (LLP)
The LLP lets you withdraw up to $10,000 per year (up to a maximum of $20,000) from your RRSP for you, your spouse or your common-law partner. You can use the funds for full-time education or a training program.
Spousal RRSPs
A spousal RRSP lets you contribute and save money for your spouse or common-law partner. You contribute, up to your contribution limit, but your spouse or common law partner owns the RRSP, not you.
Group RRSPs
A group RRSP is a savings plan offered through an employer where you can contribute directly from your paycheque. In some cases, you can also receive matching contributions from your employer.
Want to learn how to combine the FHSA and Home Buyers’ Plan to purchase your first home?
Learn more on FHSA vs HBP
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RRSP FAQs
You are eligible to open an RRSP if you have contributing room.
For most Canadians, you can easily open an RRSP if you:
- Are a Canadian resident
- Have a Social Insurance Number (SIN)
- Have contributing room
- Have filed a tax return in Canada
Choosing between an RRSP or a TFSA depends on your financial goals and needs.
The major differences between RRSPs and TFSAs are based on the tax implications. RRSPs offer a tax deduction when you contribute, but you must pay tax when you withdraw the money. TFSAs, however, offer no tax deduction. But you also don’t need to pay tax on any withdrawals, including any growth.
In general, an RRSP may be better if you plan on withdrawing money when you’re in a lower tax bracket (like in retirement). A TFSA may be better for short-term goals, like buying a car or paying for a vacation.
Keep in mind, you don’t have to choose between an RRSP and a TFSA. You can have both.
There is no difference between RSPs (Retirement Savings Plans) and RRSPs (Registered Retirement Savings Plans). Both terms refer to the same retirement savings plan.
RSP however, can also refer to a Registered Savings Plan. This is a general term that refers to all registered savings plans including Registered Disability Savings Plan (RDSP), Registered Education Savings Plan (RESP), and the RRSP.
When you retire, you can use funds from your RRSP for any purpose, including:
- general living expenses,
- paying medical or health-related costs (e.g. prescription drugs, health insurance, etc.),
- travel and vacation, and
- any hobbies you may take up.
There’s no minimum age required to open an RRSP. You can open an RRSP if you have contribution room. Generally, you start accumulating contribution room the year after you first start earning income. However, even though there's no minimum age for owning an RRSP under federal law, provincial law imposes age requirements for owning property. Financial institutions may also impose age requirements for owning property, like an RRSP
Financial institutions may also impose age requirements for owning financial products and may impose minimum contributions.
A locked-in RRSP is an older term for a type of RRSP that holds money from your former employer’s pension plan. Today, these RRSPs are commonly referred to as LIRAs (locked-in retirement account).
Unlike a regular RRSP, the amounts in a LIRA are “locked-in,” which means you generally can’t withdraw money until you reach a specific age (usually age 55).
It depends on how old you are when you retire. You can retire at any age. So if you retire in your 50s or 60s or even sooner, then you can continue to contribute to your RRSP provided you still have a source of income and contribution room available. But you can no longer own an RRSP by December 31 of the year you turn 71.
It depends on your financial goals and needs. You can own a variety of investments within an RRSP like segregated funds, mutual funds, GICs, stocks, bonds and more.
Connect with a Sun Life advisor to find out which investments can help you meet your financial goals
It depends on the situation. In many cases, an RRSP can roll over to the surviving spouse or common-law partner on a tax-deferred basis. Your spouse won't have to pay tax until they withdraw funds (and then only on what they withdraw during the year). Your spouse doesn’t require additional RRSP contribution room when the rollover happens. Otherwise, subject to a few exceptions, the value of your RRSP is included as income in your final tax return, regardless of who receives the funds (e.g. your adult children, a charity, etc.). This applies to most provinces, but special rules apply if you’re a Quebec resident.
No, you can name only beneficiaries to your RRSP. This applies to most provinces.
However, in Québec, you can only name a beneficiary to a RRSP for insurance contracts like insurance GICs and segregated funds. Québec doesn’t allow beneficiary designations on mutual funds, stocks, bonds and trust GIC held in an RRSP.
No. During your lifetime you can’t transfer your RRSP tax-free to someone else. You can withdraw money from your RRSP and give it to your spouse, common-law partner or adult child. You’ll have to pay tax on that withdrawal.
Yes. You can leave your RRSP funds to your adult children at your death by naming them as the beneficiary of your RRSP3. The value of your RRSP will be included as taxable income in your final tax return. Your estate will have to pay the tax, even though your children will get the money. That’s why it’s important for your estate representative to ensure that they have enough money on hand to pay the tax. If the estate lacks the funds, the government can pursue the RRSP beneficiary for the deficiency. What’s more, in some cases, you may be able to do a tax-free rollover of your RRSP to a child or grandchild who’s financially dependent and has a disability. Speak to a tax and legal advisor to better plan for your unique situation.
3 Most provinces allow you to designate beneficiaries for your RRSPs. However, in Québec, you can only name a beneficiary to a RRSP for insurance contracts like insurance GICs and segregated funds. Québec doesn’t allow beneficiary designations on mutual funds, stocks, bonds and trust GIC held in a RRSP.
It depends on who you’ve named as your beneficiary:
- If the RRSP money is rolled over to your spouse or common law partner, they won’t pay tax until they take money from the RRSP.
- If the RRSP money goes to your adult children or anyone else, they won’t pay tax on the money they receive from your RRSP. But the entire value of your RRSP will be included as taxable income in your final tax return.
In rare cases, a child beneficiary may be able to transfer the RRSP money they receive to:
- a term certain to age 18 annuity (financially dependent child under the age of minority),
- their own RRSP (adult or minor financially dependent child because of a disability), or
- a lifetime benefit trust.
In any case, you won’t have a tax liability in your final tax return when you die, and the child will be able to defer receipt of income, and the tax liability. These types of situations require careful planning. This isn’t a comprehensive list of all your options. Speak to a tax and legal advisor to review your and your beneficiary’s unique situations.
If you’ve named a beneficiary for your RRSP, it’s not subject to probate . However, if you don’t name a beneficiary, your RRSPs may be subject to probate. Please note that probate tax varies across provinces and territories. Probate applies to most provinces and territories, except Quebec.
More about RRSPs from Sun Life
Try our RRSP calculator to find out how much you need to save
This tool will help you see how changing what you put in your registered retirement savings plan (RRSP) can affect your retirement savings.
Get your RRSP receipts and tax slips
Get your RRSP receipts and tax slips
Find more tips on saving for retirement
Find more tips on saving for retirement.
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.