An RRSP provides short and long-term tax advantages that can help fund the retirement you want.
It’s an investing and retirement savings account registered with the Canada Revenue Agency (CRA) that provides Canadians benefits to save for retirement. The money you put towards an RRSP isn’t taxed as a part of your income, so you pay less income tax.
It’s different from a typical savings account as it’s a place to put your investments where any growth isn’t taxed until you take your money out. Usually you’ll be retired by the time you withdraw your money, so you’ll generally pay less tax than in your higher earning years and get to keep more of your money for retirement.
[Music plays]
Narrator: Want to achieve your financial goals faster?
Description: A trowel scoops a seed into a pile of dirt. The frame splits in half. The left side shows saving $500/month at age 25. The right side is later, $1000/month at age 45.
Narrator: Then why not start saving money today.
Description: A watering can is lifted and waters the seed. The trowel covers the seed.
Narrator: Because, the sooner you start putting it away
Description: A calendar enters the frame, with the same amount invested on the first day of each month.
Narrator: The sooner your money can grow
Description: The split frame with the two seeds returns. On the left side a tree starts to grow as the age increases from 25 to 45. A legal line appears: “$500 invested on the first day of every month over 40 years. 6% annual rate of return, compounded monthly. Segregated fund and/or mutual fund fees will lower your rate of return.”
Narrator: thanks to earnings that can compound over time.
Description: A tree also starts to grow on the right side at age 45. Both sides finish growing at age 65. A legal line appears: “$1000 invested on the first day of every month over 20 years. 6% annual rate of return, compounded monthly. Segregated fund and/or mutual fund fees will lower your rate of return.”
Narrator: Before you know it, you’ll be closer to achieving your goals, than if you’d waited.
Description: The tree on the left side is bountiful, saving $1,000,724. The tree on the right is much smaller, saving $464,351.
Narrator: Save early, save often.
Description: The tree on the right moves out of frame. Text “Save early, save often” appears.
Narrator: Learn more at canadalife.com
Description: Frame fades to reveal “Learn more at canadalife.com” with Canada Life logo and legal line: Canada Life and design are trademarks of The Canada Life Assurance Company.
- Talk to an advisor to open an RRSP with the right investments depending on your retirement goals and your risk tolerance.
- Figure out the contributions that fit your situation, making sure you don’t go over your contribution room.
- Your annual contributions can be deducted from your taxable income, thereby reducing your overall tax bill.
- Any investment growth grows tax free.
- You can access money when you need it, but withdrawals are taxable.
- Alternatively, you can withdraw tax-free to buy your first home or for you or your spouse’s education, if you qualify.
- When you’re ready to retire or you turn 71, your RRSP converts to a RRIF where you must withdraw your minimum annual amount. Alternatively, you can purchase an income annuity.
Generally, your contribution limit is calculated by the Canada Revenue Agency based on these 3 factors:
- Total of your unused deduction room from the previous year
- Now add the smaller amount of:
- 18% of the earned income you reported on your tax return last year
- $31,560 (the annual limit for 2024)
- $32,490 (the annual limit for 2025) - Then subtract any pension adjustment from the previous year (if applicable)
What happens if you go over your RRSP limit?
You will be taxed 1% per month on any amount that is more than $2,000 over your contribution limit. If you don’t pay the additional tax within 90 days after the calendar year, you’ll face late-filing penalties or interest charged.
An RRSP provides tax advantages up front and in the future.
There are 2 general RRSP contribution rules:
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You can contribute until Dec. 31 of the year you turn 71 years old
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You can contribute what you have available in your contribution room provided by the CRA
Don’t let the term ‘savings’ plan limit you. Canada Life offers these investment opportunities:
March 3, 2025 is the last day to contribute to you or your spouse’s RRSP to claim a deduction on your 2024 tax return.
You can withdraw from your RRSP at any time but there are 3 main considerations:
You can withdraw funds from your RRSP tax-free to buy your first home or help fund you or your spouse’s education, within certain limits.
A group RRSP—usually offered through your employer—is different from one you might open on your own in two ways: Group RRSPs usually have lower management fees when compared to retail, and allow your employees to contribute through payroll. That’s a plus because it means your RRSP contributions are deducted before tax is—potentially reducing the amount of income tax from your pay.
Do you need a TFSA or an RRSP?
At the end of the day a TFSA and an RRSP both help you do the same thing – allow you to save money for the future. But they do it in different ways, so depending on your circumstances, having both can help you achieve your goals.
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RRSP
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How do you start one? |
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How long can you contribute? |
Dec. 31 of the year you turn 71 |
For life |
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What’s the contribution deadline? |
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What’s the contribution limit? |
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$7,000 for 2024, plus any withdrawals in a previous year and any unused contribution room carried forward from the previous year |
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What happens if you withdraw money? |
Contribution room is permanently lost |
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What are the upfront tax advantages? |
Lower your taxable income for the current year |
None because contributions are made with after-tax income |
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What are the future tax advantages? |
Any income earned in your RRSP is usually free from tax as long as it stays in the plan. Every dollar you withdraw is taxed at your marginal tax rate, which is usually lower when you’re retired. |
You generally won’t pay tax on any income earned in the account or the money you withdraw. There aren’t any tax consequences if you need to use your savings for emergencies or short-term expenses. Withdrawals aren’t considered income, so this money isn’t included when the government calculates benefits like Old Age Security, Guaranteed Income Supplement, GST/HST credits and other credits/benefits like the Age Credit. |
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Bottom line |
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