RRSP: Everything You Need to Know

The Registered Retirement Savings Plan (RRSP) is Canada's primary tax-deferred retirement savings vehicle. Contributions reduce your taxable income in the year you contribute, and investment growth is tax-deferred until withdrawal. Your RRSP deduction limit is 18% of your previous year's earned income, up to the annual dollar limit ($33,810 for 2026), minus any pension adjustment from employer pension plans.

Beyond retirement savings, RRSPs offer two special withdrawal programs. The Home Buyers' Plan (HBP) lets first-time buyers withdraw up to $60,000 tax-free for a down payment, repayable over 15 years. The Lifelong Learning Plan (LLP) allows withdrawals of up to $10,000 per year (max $20,000) for full-time education, repayable over 10 years. Both programs provide interest-free loans from your own savings.

Spousal RRSPs allow a higher-earning spouse to contribute to the lower-earning spouse's RRSP, receiving the tax deduction while shifting future income to the lower-tax spouse. The three-year attribution rule means withdrawals within three years of a spousal contribution are attributed back to the contributor. At age 71, you must convert your RRSP to a RRIF (Registered Retirement Income Fund) or purchase an annuity. RRIF minimum withdrawal percentages start at about 5.28% at age 72 and increase annually.

When deciding how much to contribute, consider your current and expected future marginal tax rates. If you expect to be in a lower tax bracket in retirement, RRSP contributions offer a net tax benefit. If your current rate is low (under 30%), a TFSA may provide better lifetime value.

A common mistake is confusing your RRSP deduction limit with your contribution room. Your deduction limit is what you can contribute this year, while your total room includes any unused amounts carried forward from previous years — check your latest Notice of Assessment from the CRA for the exact figure. Over-contributing by more than $2,000 (the lifetime buffer) triggers a 1% per month penalty on the excess. If you realize you have over-contributed, withdraw the excess as soon as possible and file Form T3012A to request a waiver of the penalty if you can demonstrate it was a reasonable error.

For couples, the spousal RRSP is a powerful income-splitting tool. The higher-income partner contributes to the lower-income partner's spousal RRSP, claims the deduction at their higher marginal rate, and the funds eventually get withdrawn by the lower-income spouse at their lower rate. Just remember the three-year attribution rule: if the annuitant (lower-income spouse) withdraws within three calendar years of the last spousal contribution, the withdrawal is taxed in the contributor's hands instead. Planning withdrawals carefully around this window is essential to realizing the full tax benefit.