What is an RRSP (Registered Retirement Savings Plan)?

Key takeaways

• An RRSP is a tax-registered account that helps you save for your retirement faster.
• It provides an immediate tax benefit by reducing your taxable income and also allows your investments to grow tax-free (you’re only taxed when you make withdrawals).
• An RRSP can hold many types of investments, which can help your savings grow faster and give you a more comfortable retirement.

A Registered Retirement Savings Plan (or RRSP for short) is a savings account that’s registered with the federal government and provides investors with several tax advantages.

As its name suggests, it’s designed to help Canadians save for retirement by providing tax breaks so that their savings grow faster and they’re able to enjoy a more comfortable retirement.

A Registered Retirement Savings Plan is quite a complex financial tool, however, and many people are unaware of its benefits and its limitations. We take a comprehensive look at how an RRSP works, how much you can contribute to an RRSP, the pros and cons of an RRSP and whether an RRSP is the right saving strategy for you.

How does an RRSP work? 

An RRSP is a retirement savings plan that is registered with the federal government and you make contributions to. The idea is that you use the RRSP to save money during your working life, then use those savings to supplement your other retirement income, such as a company pension, Canada Pension Plan (or Quebec Pension Plan) or Old Age Security.

One of the key benefits is that any contributions you make to your RRSP are tax deductible — this means that the amount you save every year reduces the amount of income you earn, from a taxable point of view. This means the amount of income tax you’re liable for is reduced, with some people receiving a sizeable tax refund if their RRSP contributions are large enough. 

Another key advantage of the Registered Retirement Savings Plan is that all growth in the account — including interest, dividend payments and capital gains (which help your investments grow in value) — is tax deferred. This means that you won’t pay any taxes on the increase in your investments’ value, until you make withdrawals from the plan. This means that your investments can grow faster, as their gains are not reduced by taxation.

When it comes time to retire, investors typically convert their RRSP investments into a Registered Retirement Income Fund (RRIF) and/or an annuity, which in turn provides a regular retirement income. Most people convert their RRSP into a RRIF or annuity at some point in their 60s, but by law you must convert it by the end of the year you turn 71.

To qualify to open an RRSP, you need to:

• Be a Canadian resident and have a Social Insurance Number.
• Earn income and file a tax return.
• Be 71 years old or younger.

What investments can you hold in an RRSP?

There are several investment options for your RRSP beyond just cash. And, given that many people will be investing in their RRSP for several decades, it might make sense to hold some investments that have the highest growth potential.

You can include the following investments in your RRSP:

• Cash savings accounts.
• Guaranteed Investment Certificates (GICs).
• Government and corporate bonds.
• Mutual funds.
• Exchange-traded funds (ETFs).
• Individual stocks that are listed on designated stock exchanges.

It’s really important that you don’t include any non-qualified investments in your RRSP, as this can lead to adverse tax implications. Your financial advisor or financial institution can help ensure you only hold qualified investments in your RRSP.

RRSP rules and limits

As with the Tax-Free Savings Account (TFSA), there is a limit to how much you can contribute each year, and that limit changes from year to year.

You earn RRSP contribution room each year that you earn income. The amount of RRSP contribution room generated in a year is calculated as the smaller amount of either:

• Eighteen per cent of your earned annual income.
• The annual RRSP contribution limit (which is $33,810 for 2026).

You would also need to take into account any pension adjustment, net past service pension adjustment and pension adjustment reversal, if applicable.

However, this is just your annual contribution limit. If you don’t contribute the maximum amount allowed in any given year, the shortfall can be rolled over to subsequent years, giving you more contribution room. Therefore, if you’ve been earning a wage for many years but never maxed out your RRSP contributions, you could have an RRSP contribution limit that is far higher than the annual amount.

There are several ways to discover exactly how much you can contribute to your RRSP:

• Your most recent notice of assessment (the RRSP Deduction Limit Statement).
• Your Government of Canada My Account.
• The MyCRA mobile app.
• By calling the CRA at 1-800-959-8281.

What is the RRSP deadline?

You have up to 60 days after December 31 to make your RRSP contributions for the previous year. For the 2025 tax year, the RRSP deadline is March 2, 2026.

How do you withdraw money from an RRSP?

Given that Registered Retirement Savings Plans are designed to provide income in retirement, the most common way to withdraw money from an RRSP is to convert it into either a RRIF or an annuity, when you retire. You would then either receive regular annuity payments or make withdrawals to provide retirement income.

When you do this, withdrawals or annuity payments are considered income and will be subject to income tax. The plus side is that your overall retirement income will likely be lower than when you were working, so you may be in a lower tax bracket.

You can also withdraw money from your RRSP at any time, but you will pay a price. Not only will you have to include the withdrawal as income on your tax return, but your financial institution will also hold back some of the money in the form of a withholding tax. This is essentially an estimate and prepayment of the income taxes you may owe when you eventually file your income tax returns. The withholding tax increases as the amount you withdraw increases:

(These rates are 5%, 10% and 15% respectively in Quebec, plus provincial tax.)

Given that the withdrawal is also treated as income, you could end up paying more than 30% in tax if it bumps you up to a higher tax bracket.

However, there are a couple of instances where you can withdraw money from your RRSP before retiring without paying withholding or income tax at the time of withdrawal.

The Home Buyers’ Plan allows you to withdraw up to $60,000 to use as a down payment to buy or build your first home. There are a few conditions that you would have to meet, such as being considered a first-time homebuyer and using the home as your primary residence, plus you would have to pay the money back into your RRSP within 15 years.

The Lifelong Learning Plan is a program designed to help older students participate in full-time education. You can withdraw up to $20,000 over a four-year period to finance full-time training or education for yourself or your spouse in a qualifying educational program at a designated educational institution. These withdrawals must be repaid within the next 10 years.  

What is a spousal RRSP? 

A spousal RRSP is specifically designed to reduce the taxable income of the higher-earning spouse, who makes contributions to an RRSP that is legally the property of the lower-earning spouse. If you earn more than your spouse, you get to help them build up their retirement savings while receiving a tax break (your contributions are deducted from your total taxable income for the year). Your spouse is likely to be in a lower income tax bracket than yourself when they withdraw the funds after they retire, which means more tax savings. 

Advantages and disadvantages of RRSPs

While RRSPs aren’t beneficial for everybody, they do offer significant advantages for many people. They also have some drawbacks, particularly when compared to TFSAs or non-registered accounts.

RRSP advantages

• The tax benefits of deducting contributions from your taxable income and allowing your investments to grow tax deferred are key advantages of RRSPs. Your savings typically grow considerably faster than they would in non-registered accounts.
• If you don’t max out your contributions, the shortfall is added to the amount you can contribute going forward.
• You can choose from a wide variety of investments.
• Your savings are protected from creditors if you ever file for bankruptcy.
• You can use the money to buy a first home or pay for full-time post-secondary studies.
• Spousal RRSPs can reduce your overall taxes, now and in retirement.
• Withdrawals from RRIFs can be split with your spouse, for income tax purposes, once you’re 65 years of age or older.

RRSP disadvantage

• Contribution room can be limited if you’re a high earner, as the RRSP contribution limit could be well below 18% of your salary.
• Withdrawals are classed as taxable income (unlike TFSA withdrawals).
• Low-income earners pay a low rate of income tax, so RRSPs usually don’t make financial sense for this kind of investor (a TFSA would probably be a better option).
• After you convert your RRSP account to a RRIF, you must make minimum withdrawals each year (and those amounts increase each year), whether you need the money or not. This could also bring about clawbacks from benefits such as Old Age Security and the Guaranteed Income Supplement.

RRSP versus TFSA

The RRSP is not the only tax-registered account that Canadians use for their retirement savings. The Tax-Free Savings Account (TFSA) is another government-registered account that allows your savings to grow tax-free and which is playing an increasingly important part in Canadians’ retirement planning.

You can contribute up to $7,000 to your TFSA (for 2026), however, if you haven’t contributed to a TFSA before, your TFSA available contribution room in 2026 could be as much as $109,000 (if you were aged 19-plus in 2009, when the TFSA was introduced).

The main differences between the two are that you don’t get an immediate tax benefit with a TFSA (contributions don’t reduce your taxable income, as they do with an RRSP), and withdrawals from a TFSA are tax-free (unlike with an RRSP).

Withdrawals from a TFSA are added to your contribution room for the following year, whereas with an RRSP you do not get back contribution room when a withdrawal is made.

As regards retirement planning, withdrawals from your TFSA can help reduce your overall retirement income tax bill, as TFSA-held investments provide tax-free income, unlike RRSP withdrawals.

Find out more about TFSAs here.

Are RRSPs worth it?

For many people, an RRSP account is an extremely efficient way of saving for retirement and certainly worth it. The advantage of each annual contribution reducing your taxable income, plus your investments growing tax-free until you withdraw from them, mean that your investments grow faster than if you were to put them into non-registered accounts.

For people on a low income, however, a TFSA would probably be a better saving option. A key benefit of an RRSP is that you receive a tax break when you’re earning (and are typically in a higher tax bracket) and then pay income tax when you’re retired and in a lower tax bracket. For people in a low tax bracket, it may not make sense to open an RRSP, unless their higher-earning spouse was contributing to it.

RRSP frequently asked questions

How much can I contribute to an RRSP?

For the 2026 tax year, the contribution limit is $33,810 or 18% of your income, whichever is the smaller amount, less adjustments for contributions to registered pension plans. However, if you didn’t maximize your RRSP contributions in previous years, you might be able to contribute more. You can find out the exact amount on your most recent notice of assessment from the CRA.

How do I withdraw money from my RRSP?

Most people wait until they’re retired to withdraw from their RRSP. You can do this by transferring your RRSP to a Registered Retirement Income Fund (RRIF) and then withdrawing money from your RRIF. You could also use your RRSP to buy an annuity (an insurance product that provides you with a consistent income over a set period of time or for life).

You can also withdraw money from your RRSP as part of the Home Buyers’ Plan or the Lifelong Learning Plan without being taxed at the time of the withdrawal (as described earlier in this article). Otherwise, any RRSP withdrawals are taxable at the time of the withdrawal.

What is the RRSP contribution deadline?

The RRSP contribution deadline is usually 60 days into the new year, unless that day falls on a weekend. The deadline to contribute to your RRSP for the 2025 tax year is March 2, 2026.

At what age can I contribute to an RRSP?

There is no minimum age to contribute to an RRSP, but you do have to be earning income and paying/filing taxes to do so. You can contribute to your RRSP up to the end of the year in which you turn 71.

Who can open an RRSP?

Any Canadian resident with a social insurance number (SIN) and earned income who files tax returns in Canada can open an RRSP (up until the end of the year they turn 71).

Can I withdraw from my RRSP without paying tax?

Yes; if you withdraw funds as part of the Home Buyers’ Plan or the Lifelong Learning Plan and meet all of the conditions, you won’t be charged tax at the time of the withdrawal. Also, if you withdraw from your RRSP during a year in which you have very low income (if your earnings are below the basic personal amount) you may not owe tax on the withdrawal, though your financial institution will charge a withholding tax.

What can I invest in with an RRSP?

You can hold far more than just cash in your RRSP. You can invest in stocks (listed on designated stock exchanges), bonds, mutual funds, exchange-traded funds (ETFs) and GICs.

What happens if I overcontribute to an RRSP?

These are called excess contributions, and you may be taxed 1% per month on the excess amount until you withdraw it from your RRSP. If you’re over 18 years of age, there is a $2,000 buffer, so for excess contributions under that amount, you wouldn’t have to pay the excess contribution tax.

Setting up an RRSP

While the Registered Retirement Savings Plan can be extremely beneficial for many Canadian investors, it’s also quite a complex investment option. Before opening an account, you should discuss with your IG Advisor how an RRSP account will fit into your overall financial plan.

Your Advisor will also be able to confirm if an RRSP is the most suitable retirement savings strategy for you and recommend the best mix of assets to hold within it. Set up a meeting with your IG Advisor to discuss how opening an RRSP can help you to reach your retirement savings goals. If you don’t have an IG Advisor, you can find one here.

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