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What’s an RRSP?

A registered retirement savings plan, or an RRSP, is a savings account that you open at a bank or other financial institution. It is registered by the federal government of Canada for tax savings, and you can contribute to the account up to an annual maximum amount.

What’s special about RRSPs?

Contributions to RRSPs are deductible, meaning they can be used to reduce your taxes. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you withdraw money from the account.

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If you have earned income, have a social insurance number and have filed a tax return, you can open an RRSP.

What is the contribution limit for RRSPs in Canada?

Your allowable RRSP contribution for the current year is the lesser of the two following amounts:

• 18% of your earned income from the previous tax year. For most people, earned income for RRSP purposes is the amount in box 14 of their T4 slips ; earned income also includes self-employed net income, CPP/QPP disability payments and net rental income.
• The maximum annual contribution limit for the taxation year, minus any company sponsored pension plan contributions (defined as PA, or short for pension adjustment on your T4 slip. A PA represents the value of any pension benefits accruing from participation in a registered pension plan or deferred profit sharing plan). For 2023, the annual limit is $30,780. Below, you will find the contribution limits for each of the past 10 years.

Unused RRSP contribution room can be carried forward to another year. If you aren’t able to make your total allowable RRSP contributions this year, you can make up the difference in a future year.

Where can you find your RRSP contribution limit?

After the Canada Revenue Agency (CRA) processes your tax return, it sends a Notice of Assessment (NOA), which includes your next years’ contribution limit. This notice also shows your unused contribution room. You can also call your local Tax Information Phone Systems (TIPS) number, and be sure to have your SIN and previous tax return ready. Alternatively, you can register for My Account with CRA to view your RRSP limit as well as track your refund, make updates to your return and monitor payments.

How long can you contribute to an RRSP?

You can contribute to your RRSP up until December 31 of the year you turn 71. If you contribute to a spousal RRSP (more on that below), you can do so until December 31 of the year your spouse or common-law partner turns 71.

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The deadline for contributions during the 2022 tax year is March 1, 2023. Contributions made in the first 60 days of the year can be applied against the previous taxation year.

The types of investments you can hold in an RRSP

You can simply deposit into an RRSP savings account until it builds to several thousand dollars, or you can set up a self-directed RRSP right away. If you prefer to build and manage your own investment portfolio by buying and selling a variety of different types of investments, you should consider a good balanced fund or even an easy passive strategy we call the Couch Potato Portfolio. (Check out our couch potato guide .)

You can hold the following types of investments inside your RRSP:

• Cash (money)
• Guaranteed investment certificates (GICs)
• Exchange-traded funds (ETFs)
• Mutual funds
• Real estate investment trusts (REITs)
• Bonds (both corporate and government-issued)
• Stocks (securities) that are listed on a designated exchange

How and where can you open an RRSP account?

You can choose to open an RRSP with a bank or credit union, which can be a good option for those who want the option of speaking with someone face-to-face. In addition, many financial institutions, including some discount online brokers and robo-advisors, such as Questrade or Wealthsimple , allow you to set up and manage your own RRSP account in minutes online, from the comfort of your couch. Have your social insurance number (SIN) and another piece of identification ready.

You’ll need to transfer funds from an existing account in order to make your first contribution or set up regular direct deposits. If you’re the kind of person who’s always racing to beat the contribution deadline, the latter can make your life easy—it’s a set-it-and-forget-it strategy that ensures you always have a contribution ready for the current tax year.

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All or a portion of your RRSP contribution can be made to an RRSP in your spouse’s name . As the contributor, you get the deduction, but your spouse is the owner of the plan. This program includes common-law spouses as defined by the CRA.

Who gets the most benefit from a spousal RRSP? The benefit is greatest if a higher-income spouse or common-law partner contributes to an RRSP for a lower-income spouse or common-law partner. The contributor receives the short term benefit of the tax deduction for the contributions, while the annuitant, who is likely to be in a lower tax bracket during retirement, receives the income and reports it on his or her income tax and benefits return.

What else you can use your RRSP money for?

There are two programs you can use to take money out of an RRSP plan without incurring tax. They are the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP).

With the HBP you can take up to $35,000 out of your RRSP ($70,000 per cour to put towards the down payment on your first home and you won’t be taxed on it. But you’ll have to pay it back into your RRSP over the next 15 years.

With the LLP, the rules are slightly different. You can withdraw up to $10,000 a year, or up to $20,000 in total each time you participate in the LLP to help pay for your or your spouse’s education. You can’t use it for your children’s education. All you have to do is repay at least 10% per year for up to 10 years. Participants must start to make repayments two years after their last eligible withdrawal, or five years after the first withdrawal, depending on which due date comes first. Amounts withdrawn must be repaid in 10 years.

Watch: The differences between a TFSA and RRSP

What else should I know about taxes?

If you’re looking at your RRSP as you’re prepping for tax season, there are more things you need to know. For more information on the deadline to file your 2022 taxes, which tax bracket you fall into, and what exactly you can claim with regards to COVID work-from-home deductions, read our handy 2022 tax tip primer .

Read more about RRSPs :

• 5 common RRSP mistakes to avoid
• How much to take out of your RRSP in your 60s
• TFSA vs RRSP: How to decide between the two
• Don’t drown in debt to beef up your RRSP