What is an RRSP?
A Registered Retirement Savings Plan (RRSP) is a government-registered investment account that lets Canadians save for retirement with two major tax advantages: contributions are tax-deductible (reducing your income this year), and all growth inside the account is tax-sheltered until you withdraw.
Think of it as the government's deal: invest now, pay tax later — and in the meantime, the money that would've gone to taxes stays invested and compounds for you.
You earn $80,000. You contribute $15,000 to your RRSP. Your taxable income drops to $65,000. The tax savings could be $4,000–$6,000 returned as a refund. Invest that refund in your TFSA and you've used the system to its full potential.
How Does an RRSP Work?
Every year, you earn new RRSP contribution room equal to 18% of your previous year's earned income, up to an annual maximum. Unused room carries forward indefinitely — so if you haven't been contributing, you may have years of unused room right now.
Your exact contribution room is shown on your CRA Notice of Assessment, or on CRA My Account.
RRSP Contribution Limits 2026
| Year | Annual Maximum | % of Prev. Year Income |
|---|---|---|
| 2021 | $27,830 | 18% |
| 2022 | $29,210 | 18% |
| 2023 | $30,780 | 18% |
| 2024 | $31,560 | 18% |
| 2025 | $32,490 | 18% ✦ Current |
| 2026 | TBD (~$33,800) | 18% of 2025 income |
✦ 2025 limit applies to contributions made in 2026 before the March deadline. Check your exact room on CRA My Account.
To claim an RRSP deduction on your 2025 tax return, contributions must be made by March 2, 2026. After that date, any contributions count toward your 2026 return.
What Can You Hold in an RRSP?
Just like a TFSA, your RRSP at a brokerage like Wealthsimple can hold:
- Stocks — Canadian and US equities
- ETFs — the most popular choice for long-term investors
- Bonds — government and corporate fixed income
- GICs — guaranteed return products
- Mutual funds — actively managed options
One key advantage: US dividends held in an RRSP are not subject to the 15% withholding tax that applies in a TFSA — making an RRSP especially efficient for US dividend stocks or ETFs.
RRSP Withdrawal Rules
You can withdraw from your RRSP at any time, but withdrawals are added to your taxable income in the year you take them. A withholding tax of 10–30% (depending on the amount) is applied at withdrawal as a prepayment against your tax bill.
The RRSP must be converted to a RRIF (Registered Retirement Income Fund) by December 31 of the year you turn 71. After that, minimum annual payments are taxed as income — ideally at a lower rate than your working years.
Two Special Withdrawal Programs
- Home Buyers' Plan (HBP): Withdraw up to $35,000 ($70,000 per couple) tax-free for a first home, repaid over 15 years. The new FHSA is often better for first-time buyers.
- Lifelong Learning Plan (LLP): Withdraw up to $10,000/year (max $20,000 total) for full-time education, repaid over 10 years.
RRSP Pros & Cons
✅ Advantages
- Contributions reduce taxable income now
- Tax-deferred growth until withdrawal
- No US dividend withholding tax
- Home Buyers' Plan and LLP access
- Unused room carries forward forever
- Spousal RRSP for income splitting
❌ Limitations
- Withdrawals taxed as income
- Must convert to RRIF at 71
- Withholding tax on withdrawals
- Over-contribution penalty (1%/month over $2K buffer)
- Less flexible than a TFSA
RRSP vs TFSA — Which First?
- →Income under $50K/year: Start with a TFSA — the RRSP deduction is worth less at a low marginal rate.
- →Income $50K–$100K: Both are valuable. Consider maxing your TFSA first, then RRSP.
- →Income over $100K: RRSP becomes very powerful — you're deferring tax from a high rate today to a lower rate in retirement.
- →Buying your first home: Check the FHSA first — it combines RRSP and TFSA benefits for first-time buyers.
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