RRSP Guide: Tax-Deferred Retirement Savings

How the RRSP Works

When you contribute to an RRSP, that amount is deducted from your taxable income for the year. If you earn $80,000 and contribute $10,000, you're taxed as if you earned $70,000. At a 30% marginal rate, that's a $3,000 tax refund.

Investments inside the RRSP grow without being taxed. You pay tax later, when you withdraw in retirement — ideally at a lower tax bracket than when you contributed.

The core RRSP bet: your tax rate at contribution is higher than your tax rate at withdrawal.

Contribution Limits

• 18% of previous year's earned income, up to the annual maximum
• 2024 annual maximum: $31,560
• 2025 annual maximum: $32,490
• Unused room carries forward indefinitely
• Deadline: 60 days after year-end (usually March 1)

Check your exact deduction limit on your CRA Notice of Assessment or My Account.

When RRSP Beats TFSA

The RRSP is better when:

• Your income is high now (above ~$55K) and you expect lower income in retirement
• You want to hold US dividend stocks — RRSP is exempt from the 15% US withholding tax via the Canada-US tax treaty
• Your employer matches contributions — always take the match, it's free money
• You're buying a first home — the Home Buyers' Plan (HBP) lets you borrow $60,000 from your RRSP tax-free

When TFSA Beats RRSP

• Low income years (under ~$55K) — the tax deduction is worth less
• You need flexibility — TFSA withdrawals don't affect government benefits (OAS, GIS); RRSP withdrawals do
• You expect higher income in retirement — rare, but possible for business owners or those with large pensions

Home Buyers' Plan (HBP)

First-time home buyers can withdraw up to $60,000 from their RRSP tax-free to buy a qualifying home (increased from $35,000 in 2024).

• Must be repaid to your RRSP over 15 years (starting the 2nd year after withdrawal)
• Missed repayments are added to your taxable income that year
• Can be combined with FHSA for even more tax-free home buying power

Lifelong Learning Plan (LLP)

You can withdraw up to $10,000/year (max $20,000 total) from your RRSP to fund full-time education for you or your spouse.

• Must be repaid over 10 years
• Less well-known than HBP but equally useful

Investment Strategy

The RRSP's tax-deferred nature makes it ideal for:

• US-listed ETFs (VTI, VOO, QQQ) — 0% US withholding tax in RRSP vs 15% in TFSA
• Bonds and fixed income — interest is taxed at your full rate outside registered accounts, so shelter it here
• REITs — distributions are mostly income, highly tax-inefficient outside registered accounts

Common Mistakes

1. Contributing at low income. Save the deduction for high-income years. You can contribute now and defer the deduction.
2. Spending the tax refund. The refund IS part of the RRSP strategy — reinvest it (ideally in your TFSA).
3. Forgetting about forced withdrawals. RRSP converts to RRIF at 71, with mandatory minimum withdrawals that are taxed as income.
4. Ignoring the clawback. RRSP/RRIF withdrawals count as income and can trigger OAS clawback (above ~$90K in 2025).
5. Holding Canadian dividend stocks in RRSP. Canadian dividends get a tax credit in non-registered accounts — that credit is wasted inside an RRSP.