FEBRUARY 3, 2023
By Sun Life Staff

Read time: 6 minutes

For most people, a registered retirement savings plan (RRSP) is a way to both:

  • save for retirement and 
  • pay less income tax. 

True, RRSPs are a great tool for retirement planning. But there are 5 other useful things you can do with them.

1. Use the RRSP Home Buyers’ Plan to buy your first house

Will you be a first-time home buyer? You can use your RRSP to help buy your first house using the Home Buyer’s Plan (HBP).

You (and your spouse if you have one) can borrow up to $35,000 from your RRSP to buy your first home. And you must pay the money back to your RRSP over a 15-year period.

2. Use the RRSP Lifelong Learning Plan to go back to school

You can also use an RRSP to fund your or your spouse’s education under the Lifelong Learning Plan (LLP).

The LLP lets you withdraw up to $10,000 per year to a maximum of $20,000 tax-free from your RRSP. You or your spouse can then use that money to pay for a full-time education program. Or, you can use it for a part-time program, if either of you has a disability.

Like the HBP, any withdrawals for the purpose of training or education are tax free. This is, provided you use the government form RC96.

3. Reduce tax deductions at source

Do you wait until you file your tax return to claim your RRSP tax deductions and get your refund? Sure, getting that refund feels good. But what you’re doing is giving the government an interest-free loan.

How can you avoid that? By contributing to your RRSP through  payroll deduction to a group or workplace plan (if your employer offers one). That way they’ll make the necessary adjustments and deduct the taxes at the source. Otherwise, consider filing a T1213 Request to Reduce Tax Deductions at Source.

4. Make contributions in kind (or “as is”) to your RRSP

Often, people contribute to their RRSPs directly with cash. But cash contributions are not your only option. You can consider transferring bonds, mutual funds or stocks in kind (or “as is”) from your non-registered investment account to your RRSP. (Check your RRSP rules; not all plans allow this strategy.) 

What happens when you transfer an investment such as stocks or bonds into an RRSP?  It’s still considered taxable. When making an in-kind contribution to an RRSP, it’s possible for capital gains to be realized (even if the shares are transferred directly). You haven’t sold the shares on the market. However, Canadian tax rules dictate that a “deemed disposition at fair market value” has occurred. So, you may have to pay capital gains tax if the value of your investment has gone up.

But what if the value of your investments has gone down? Then keep in mind that you can't claim a capital loss for in-kind contributions to a registered plan.

5. Use the RRSP over-contribution limit

There’s a one-time over-contribution limit of $2,000. The over-contribution limit can provide a buffer in case you make a mistake in calculating your RRSP contributions.

Some people purposely over-contribute up to the limit to take advantage of tax-deferred growth and compounding in their RRSPs.

  • What happens as you get closer to retirement and need to make withdrawals? Then, you must make sure that you eventually claim that $2,000 as part of your contribution limit to avoid double taxation.
  • What happens if you exceed the $2,000 buffer?  You'll get a penalty of 1% per month until you withdraw the excess

Are your RRSP savings enough? Need help getting started

To get your RRSPs in order, consider one of these 3 options:

  1. Find out if you’re saving enough with this RRSP calculator.
  2. If you have a workplace savings plan with Sun Life, you can login to mysunlife.ca to check your RRSP balance or make a contribution. (If you have unused contribution room). 
  3. A Sun Life advisor can help you create or modify a savings plan that works best for you. Talk to an advisor.

What are RRSPs?

RRSP Calculator

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This article is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation