How RRSPs work
A Registered Retirement Savings Plan (RRSP) is an account, registered with the federal government, that you use to save for retirement. RRSPs have special tax advantages.
3 tax advantages
- Tax-deductible contributions – You get immediate tax relief by deducting your RRSP contributions from your income each year. Effectively, your contributions are made with pre-tax dollars.
- Tax-sheltered earnings – The money you make on your RRSP investments is not taxed as long as it stays in the plan.
- Tax deferral – You'll pay tax on your RRSP savings when you withdraw them from the plan. That includes both your investment earnings and your contributions. But you have deferred this tax liability to the future when it’s possible that your marginal tax rate will be lower in retirement than it was during your contributing years.
How much you can contribute
Anyone who files an income tax return and has earned income can open and contribute to an RRSP. There are limits on how much you can contribute to an RRSP each year. You can contribute the lower of:
- 18% of your earned income in the previous year, or
- the maximum contribution amount for the current tax year: $24,930 for 2015.
If you are a member of a pension plan, your pension adjustment will reduce the amount you can contribute to your RRSP.
You can carry forward unused contributions
If you don’t have the money to contribute in a year, you can carry forward your RRSP contribution room and use it in the future. Learn more about how RRSPs work
Investments you can hold in an RRSP
Investments that can be held in an RRSP are called qualified investments. They include:
Investments you can't hold in an RRSP
- Precious metals
- Personal property such as art, antiques and gems
- Commodity futures contracts
As of March 22, 2011, you also can't hold any of the following investments in your RRSP:
- Prohibited investments – Examples: debt you hold, investments in entities in which you hold an interest of 10% or more.
- Non-qualified investments – Examples: shares in private holding companies, foreign private companies and real estate.
If you buy these investments for your RRSP, you will be charged a tax equal to 50% of their fair market value. You may apply for a refund if you dispose of the investment from your RRSP by the end of the year after the year the tax applied. Learn more about these rules.
Understand the risks
The value of your RRSP may go down as well as up, depending on the investments it holds. Learn more about investment risks
How long your RRSP can stay open
You must close your RRSP in the year you turn 71. You can withdraw your RRSP savings in cash, convert your RRSP to a RRIF or buy an annuity.
Where to open an RRSP account
- Banks and trust companies
- Credit unions and caisses populaires
- Mutual fund companies
- Investment firms (for self-directed RRSPs)
- Life insurance companies
RRSP or TFSA?