RRSP Guide In Canada

To live comfortably in retirement, you’ll want to do some early planning while you’re still working to ensure financial stability. While there are several financial tools available, an RRSP can be a powerful vehicle to help you grow your savings tax-free while allowing you to minimize income tax payments. The key is to start early and make consistent contributions to give you plenty of time to build a substantial retirement fund. 

In this guide, we’ll provide you with details of RRSPs to help you make the best use of these registered accounts. 

RRSP Overview

What Is An RRSP In Canada?

A Registered Retirement Savings Plan (RRSP) is a tax-advantaged retirement savings account that is designed to help Canadians save for retirement. Contributing to an RRSP account is advantageous for the following key reasons:

• Contributions Reduce Your Taxable Income: RRSP contributions are tax-deductible, which means they reduce taxable income, helping you save on income taxes.
• Tax-Free Investing: Investments in an RRSP grow tax-free until the funds are withdrawn.

Types Of RRSP Accounts

You can hold a variety of investment accounts in an RRSP. The type of account you choose is generally based on your investment goals and appetite for risk. Here are some investment accounts to consider: 

• Cash and Savings Accounts
• GICs (Guaranteed Investment Certificates)
• Stocks
• Bonds
• Exchange-Traded Funds (ETFs)
• Mutual Funds

Depending on how much control you’d like to have over this investment and how familiar you are with investing in an RRSP, you may choose one of the following:

• Self-Directed RRSP: If you prefer to manage your own retirement investments, then a self-directed RRSP may be worth considering. This type of account offers the flexibility to choose assets such as stocks, bonds, mutual funds, and others, while still providing tax advantages.
• Managed RRSP: If you’re not comfortable selecting individual investments on your own, a managed RRSP may be a better option. In this case, a financial advisor or portfolio manager chooses your investments for you. There is also the option to use a robo-advisor service for a more automated, affordable solution to investing in an RRSP.

Learn more: Best RRSP Accounts In Canada 2025

How To Open An RRSP Account

To open an RRSP account, follow these steps:

Step 1. Choose A Financial Institution

You can open an RRSP through a bank, credit union, trust company, or insurance company. Each one offers various types of investment options, so be sure to choose the one that aligns with your investment goals. 

Step 2. Determine The Eligibility Requirements

To open an RRSP account, you must meet the following requirements:

• Be a Canadian resident. Generally, only residents of Canada can open an RRSP. That said, you can still maintain your RRSP if you move out of Canada and become a non-resident.
• Have a valid Social Insurance Number (SIN). RRSP accounts must be registered with the Canada Revenue Agency (CRA). As such, your financial institution will need your SIN to register this account with the CRA.
• Earned employment or business income. The CRA uses your income to determine your RRSP contribution limit.
• File a tax return to create RRSP contribution room. The CRA uses the income reported on your tax return to determine your yearly RRSP deduction limit. This amount is what you may deduct from your income for RRSP contributions.

There are no age requirements, but you’ll need to be over 18 years of age to contribute over $2,000 per year.

To verify your identity and creditworthiness, you’ll need to provide the following:

• Photo ID. Financial institutions require photo ID, such as a passport or driver’s license, to verify your identity.
• Consent for a credit check. If you’re opening an RRSP with an online institution, they may verify your information with a credit reporting agency. This may involve a soft credit check, which won’t impact your credit score.

Step 3. Open An Account 

Choose the type of RRSP account you’d like to open, such an individual RRSP, a spousal RRSP, or a self-directed RRSP. 

How Much Can You Contribute To Your RRSP?

Here’s everything you need to know about contributing to your RRSP:

Annual RRSP Contribution Room

• Your contribution limit is 18% of your income in the previous year, up to a maximum set by the CRA.
• Each year, the CRA sets an annual maximum contribution limit. For 2025, the limit is $32,490.

Unused RRSP Contribution Room

If you didn’t make any contributions or didn’t maximize your contributions in previous years, you can carry your unused contribution room forward.

For example, let’s say you had $5,000 of unused RRSP contribution room from previous years. In 2025, as mentioned, the RRSP contribution limit is $32,490. In this case, you’d have a total contribution room of $37,490 ($5,000 + $32,490) for 2025. To track your RRSP contribution room, use the CRA’s My Account and annual notices of assessment.

Over-Contributions To RRSPs

As mentioned, there are limits to how much you can contribute to your RRSP per year. For 2025, the RRSP contribution limit is $32,490 or 18% of what you earned in the previous year. If you over-contribute to your RRSP by more than $2,000, you may be subject to a 1% penalty per month on the excess amount.

Learn more: What Happens If You Over-Contribute To Your RRSP?

Other Ways To Contribute

• Pension Adjustments (PA). If you have a pension at your place of employment, a pension adjustment may reduce your RRSP contribution room for the following year.

• Spousal RRSP Contributions. If you’re married, you may be able to contribute to a spousal RRSP. Keep in mind, however, that this contribution would count towards your own RRSP contribution limit for the year.

When Should You Invest In Your RRSP? 

There are tax benefits to investing in an RRSP. To take advantage of these perks, consider the following tips.

Contribute As Early As Possible In The Year

A sound way to maximize your RRSP contribution is to contribute early in the year. The sooner you contribute, the more time your money has to grow tax-deferred. 

Contribute Before The RRSP Deadline 

Generally speaking, the RRSP contribution deadline is roughly two months into the new year. Make sure you find out what the date is for the current year and contribute before this date to claim deductions for the previous tax year.

Contribute During Your Higher-Income Years

RRSP contributions reduce taxable income, as mentioned. By making larger contributions when you’re in a higher income tax bracket, you can reduce your taxable income and therefore reduce how much you pay in income taxes.

When Can You Withdraw from Your RRSP?

Technically, you can withdraw from your RRSP at any time. But doing so before you retire can come with certain penalties, which we’ll discuss below. It’s important to understand when you can draw from your RRSP account to avoid these consequences.

Keep in mind the general rules surrounding RRSP withdrawals:

• Taxation: When you withdraw from your RRSP, the amount is considered taxable income. As such, you’ll be taxed on that amount at your marginal tax rate for the year that you make the withdrawal. In other words, whatever you withdraw will be added to your income for that year and taxed accordingly.
• Withholding Tax: The financial institution that holds your RRSP will apply a withholding tax when you withdraw. This tax amount varies from 10% to 30% (5% to 15% in Quebec), depending on how much you withdraw and the province you live in. Keep in mind that the withholding tax is just an estimate. You may owe more or get a refund when you file your income tax return.

Withdrawals During Retirement 

The main purpose of an RRSP is to save for retirement, so it’s ideal to wait until you retire before you start withdrawing from your RRSP. 

Once you retire, you’ll have to convert your RRSP into a Registered Retirement Income Fund (RRIF) or an annuity by December 31 of the year that you turn 71 years of age. As mentioned, your RRSP withdrawals will be subject to taxation at your marginal tax rate, which depends on the amount you withdraw and your total income for the year. 

Withdrawals Before Retirement 

If you withdraw from your RRSP early, you’ll face the following penalties:

• You’ll pay income taxes on the withdrawn amount.
• You’ll lose the benefit of tax-deferred growth.
• You may lose contribution room for that tax year.

Having said that, there are two ways you can withdraw early without penalty:

RRSP Withdrawal Strategies

To maximize your savings and minimize tax implications and penalties, consider the following RRSP withdrawal strategies:

Pension Splitting

If you’re over the age of 65 and are married or in a common-law relationship, you may be able to split eligible pension income between you and your spouse. This works well when one spouse makes considerably less than the other. 

The idea behind this strategy is to split some of your RRIF withdrawals with the spouse with the lower income to reduce the overall amount of income tax you pay. This way, you can take advantage of their lower tax bracket.

Spread Out Your Withdrawals

To avoid being pushed into a higher tax bracket, spread out your withdrawals over a few years. This can keep your withdrawals smaller and can reduce your taxable income.

Gradually Convert Your RRSP Into An RRIF

By the time you turn 71, you have to convert your RRSP into an RRIF, as noted earlier. However, you may consider converting your RRSP steadily over this time frame to minimize tax implications. 

For instance, if you need $40,000 a year, consider taking out $30,000 from your RRIF and tapping into other income sources, such as your TFSA, for the remaining $10,000 to avoid pushing you into a higher tax bracket.

Other Types Of RRSPs

A few types of RRSPs are available, and each comes with its own unique perks:

• Individual RRSPs. This is the most common type of RRSP. An individual RRSP is registered in your name. You’ll receive tax perks by making contributions.
• Spousal RRSPs. A spousal RRSP allows one spouse to contribute to the other spouse’s RRSP. Doing so can reduce taxes when the higher-income spouse contributes to the RRSP of the lower-income spouse.
• Group RRSPs. These types of RRSPs are offered by employers. Contributions to group RRSPs are automatically deducted from your paycheque, and employers match contributions, allowing you to maximize your investment while enjoying lower management fees.

RRSP Vs. Tax-Free Savings Account (TFSA)

A TFSA is a savings and investment account that allows contributions to grow tax-free, and withdrawals are not subject to taxation. There are key differences between TFSAs and RRSPs: 

Learn more: TFSA vs. RRSP | What’s The Difference?

When Should You Choose An RRSP Over A TFSA?

Choosing between an RRSP and a TFSA depends on your tax situation and financial needs. That said, you may want to consider committing more of your income to an RRSP over a TFSA in the following scenarios:

• You’re In A Higher Income Tax Bracket. If you earn a high income, you’ll be in a higher tax bracket. Since RRSP contributions reduce your taxable income, you’ll realize tax savings right away.
• You Have Employer Matching. If your employer offers an RRSP matching program, you can take advantage of these extra contributions to maximize your savings.
• You’re Looking To Buy Your First Home. The Home Buyers’ Plan allows you to withdraw up to $60,000 from your RRSP tax-free to purchase your first home. Making contributions to your RRSP early on will allow you to build up this amount over time tax-deferred, then essentially borrow from yourself when the time comes to buy a home.
• You’re Planning For Retirement. RRSPs are designed for retirement savings. Your RRSP contributions will be made available during your retirement (without penalties), and withdrawals will be taxed at your future income level, which will likely be lower than your tax rate while you’re still working.

RRSP Vs. Registered Pension Plan (RPP)

An RPP is an employer-sponsored retirement savings plan in which you and your employer both contribute until you retire. RPP contributions are tax-deductible and grow tax-deferred until you retire and start withdrawing.

RRSPs and RPPs differ in the following ways:

Learn more: RPP Vs. RRSP: What’s The Difference?

When Should You Choose An RRSP Over An RPP?

Here are some situations where an RRSP may be a better option than an RPP:

• You’re Self-Employed: If you work for yourself or for an employer without a pension plan, you won’t have access to an RPP. In this case, an RRSP can help you save for retirement on your own.
• You Want Flexibility: You’ll have more flexibility with contributions, investments, and withdrawals with an RRSP compared to an employer-managed RPP.
• You Change Jobs Frequently: If you won’t be tied to one job, an RPP may not be right for you, as it may be tied to your employer. On the other hand, an RRSP stays with you no matter how frequently you switch jobs.

Additional Reading

RRSP Loan: The Good And The Bad

Can You Keep Your RRSP In Bankruptcy?

Defined Benefits vs Defined Contribution Pension Plans: A Guide For Canadian Beginners

Final Thoughts

Contributing to an RRSP as early as possible will give you more time to save up for retirement while benefiting from long-term growth and tax-deferred investments. Be sure to speak with a financial advisor to help you make the most of your RRSP contributions and help you understand how and when to make withdrawals. Open an account and start contributing right away to ensure you have enough to live comfortably during your retirement years.

RRSP FAQs