An RRSP is a registered retirement savings plan that provides tax advantages for Canadians trying to save for retirement. These accounts have become a common part of banking in Canada and are valued by many for the retirement savings opportunities they provide.
There are plenty of differences between these and typical savings accounts, including that RRSPs allow you to make contributions and gains tax-free. At least, they're tax-free up until you make withdrawals during retirement.
To make the most of this type of retirement savings account, we've created a guide that lays out all the important information. From how it works to what your alternatives are, you'll find the answers here.
Key Takeaways
- An RRSP is a specific type of savings plan that provides tax advantages as you save for retirement.
- RRSP contributions are tax-deductible.
- For the 2025 tax year, you can contribute 18% of your pre-tax earnings or $32,490, whichever is less.
- All RRSP withdrawals count as taxable income.
- The Home Buyers' Plan and Lifelong Learning Plan are two exceptions that allow you to withdraw from your RRSP without penalty.
How does an RRSP work?
Along with FHSAs and TFSAs, RRSPs work by deferring taxes you would have had to pay on the deposits made and gains earned. Instead, taxes are paid when you withdraw money later on in life.
Once you're ready to retire, or reach the age of 71, you can transfer your RRSP amounts into a Registered Retired Income Fund (RRIF), where you slowly start to withdraw the funds as part of your retirement income.
The best RRSPs can hold a variety of investments and charge low fees. However, keep in mind that you can only open an RRSP through a CRA-approved financial institution.
RSP vs. RRSP
RSP: Any registered savings plan or retirement savings plan
RRSP: A government-registered account for retirement with specific rules for contributions and withdrawals
RSP is an umbrella term. For instance, RRSPs and TFSAs are both types of RSPs that offer tax benefits.
A HISA is not a type of RSP – even though you may be using it to save for retirement – because it's a non-registered savings plan.
RRSP contributions
There are contribution limits with RRSPs, as there are with most registered plans. You can only contribute 18% of your pre-tax earnings, up to a maximum of:
- $31,560 for the 2024 tax year
- $32,490 for the 2025 tax year
If you contribute to a registered pension plan through your employer (this doesn't include the Canada Pension Plan), you won't be able to contribute as much money as others into an RRSP. In this case, you'll see the appropriate deductions on your T4, all based on the amounts above.
Luckily, your official contribution limit can be found on your notice of assessment from your previous year's tax filing. And if you don't contribute the full amount for one year, you can carry it forward into the next.
RRSP withdrawals
There are guidelines for RRSP withdrawals as well. You can take out as much money as you like at any time but you'll have to report the amount on your income tax return. Plus, there are withholding taxes to consider – your financial institution will withhold taxes for you based on the amount being withdrawn:
- 10% on amounts up to $5,000
- 20% on amounts between $5,000 and $15,000
- 30% on amounts over $15,000
In Quebec, the rates are lower:
- 5% on amounts up to $5,000
- 10% on amounts between $5,000 and $15,000
- 15% on amounts over $15,000
Learn more about RRSP withholding taxes for Quebec residents: Payments from an RRSP, a VRSP, a PRPP or a RRIF.
Exceptions to the withdrawal rules
The Home Buyers' Plan (HBP) and the Lifelong Learning Plan (LLP) are valuable programs that allow you to borrow from your RRSP without penalty. You're able to withdraw funds to use for the purchase of a home or to pay for full-time education.
However, even with these programs, funds borrowed from your RRSP must be paid back within a strict time frame. You must begin repayment within 2 years of borrowing through the HBP and have 15 years to pay back the full amount. You have 10 years to repay amounts borrowed through the LLP program but are only required to make annual repayments of 10% of the amount withdrawn.
Investments you can and can’t hold in an RRSP
There's a list of several investment types, including cash and GICs, that anyone can hold within their RRSP – but there are also a few types that aren't acceptable, like precious metals and land. Ineligible investments typically involve close personal connections.
Here's an overview of the acceptable and unacceptable investments for RRSPs:
| Can be held in an RRSP | Can't be held in an RRSP |
|---|---|
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It's important to note that if you do hold non-qualifying investments in your RRSP, you'll have to pay a tax of up to 50% of the fair market value of the ineligible investment. The tax is calculated either from the purchase date or from the date on which the investment becomes prohibited.
RRSP pros and cons
One of the most obvious benefits of an RRSP is that your money can grow in a tax-free environment, but the overcontribution penalties are a significant drawback. Here are a few more pros and cons to consider before opening and committing to an RRSP:
| Pros | Cons |
|---|---|
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Alternatives to RRSPs
The best alternatives to RRSPs are other registered savings accounts including TFSAs and RESPs. Here are the details for a few of the most popular alternatives:
| Account type | Contributions | Withdrawals | Notes |
|---|---|---|---|
| TFSA | * Annual limits ($7,000 for 2025) * Unused room carries forward * Not tax deductible * Penalties for overcontributions | * Tax-free * Added to next year's contribution room | * Tax-free growth * No max age limits or requirements |
| RESP | * No annual limit * $50,000 lifetime limit per beneficiary * Penalties for overcontributions | * Fully taxable * $8,000 limit for full-time enrollment during the first 13 weeks of school * $4,000 limit for part-time enrollment during the first 13 weeks of school | * Tax-free growth |
| RDSP | * No annual limit * $200,000 lifetime limit per beneficiary * Not tax deductible | * Tax-free when from contribution amounts * Taxed when from gains | * Contributions must cease at the end of the year when the beneficiary turns 59 * Can transfer to another beneficiary under certain conditions |
| RRIF | * Only transfers from RRSPs or FHSAs are accepted * Not tax deductible | * Fully taxable * Minimum annual requirements that begin in year 2 | * Created by converting an existing RRSP or transferring a FHSA |
| FHSA | * Lifetime limit is $40,000 * Limit for the first year you hold the account is $8,000 * Penalty for excess contributions * Tax deductible | * Withdrawals are tax-free provided the funds are used towards the purchase of a qualifying home | * Anyone age 18+ can open an account as long as they're a Canadian resident and a first-time home buyer |
FAQ
What is an RRSP?
An RRSP is a registered retirement savings plan, a specific type of savings account where your financial contributions are tax-deferred until you enter retirement. You're taxed on all the withdrawals you make after this point.
What's the difference between a TFSA, an RRSP, and an FHSA?
The biggest difference is their purposes. A TFSA lets you save tax-free with no withdrawal penalties. An RRSP offers tax deductions now, but withdrawals are taxed. An FHSA helps first-time homebuyers save tax-free, combining RRSP-like deductions with TFSA-style tax-free growth.
What is the maximum RRSP contribution limit for 2025?
The maximum contribution limit to an RRSP for 2025 is either 18% of your pre-tax income, or $32,490, whichever is less. The limit for the 2024 tax year was $31,560. Any unused contribution room carries forward.
What happens when I withdraw money from an RRSP?
Any time you withdraw money from an RRSP, it's taxed as regular income. The amount that you withdraw is added to your taxable income for the current year and taxed at your marginal tax rate.
Who introduced RRSPs?
RRSPs were introduced by the federal government in 1957 under the Income Tax Act as a tax-deferred retirement savings option to help Canadians build their retirement funds. They are still widely used by Canadians today.
Who’s eligible for an RRSP?
Anyone in Canada under the age of 71 who has a valid SIN and files their taxes here can open an RRSP. Minors can sign up as well, as long as they have written consent from a parent or guardian.
How much will having an RRSP reduce my taxes?
Contributing to an RRSP reduces taxable income, which can potentially lower the amount you owe for taxes. If you contribute the max amount, it's possible that you may not have to pay tax on a large portion of your income.
What happens to your RRSP when you retire?
You're required to convert your RRSP into an RRIF or purchase an annuity by the end of the year you turn 71. After this transition, you're required to withdraw a minimum amount each year. These withdrawals are taxed as income.
What’s better, RRSP or TFSA?
Both are tax-advantaged accounts, but RRSPs are built specifically for retirement with more penalties for early withdrawal. TFSAs are more flexible. If your tax bracket will be higher in retirement, consider a TFSA.
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