What is an RRSP (Registered Retirement Savings Plan)?


An RRSP is a savings and investment plan for retirement that allows you to set aside pre-tax income and invest in various ways. The growth of your investments is not taxed until you withdraw the funds at retirement or transfer them into an RRIF (Registered Retirement Income Fund). RRSPs offer benefits such as convenient and quick saving and building long-term wealth, making them an important part of retirement planning.


By Carly Griffin
Senior Insurance Advisor, LLQP
15 ‏‏‎ ‎‎‎‎‎min read

Retirement planning can often seem daunting and complicated, but one of the best ways to ensure a comfortable retirement is through a Registered Retirement Savings Plan (RRSP). Not only does it reduce your taxable income right now, but it also gives you a tax-sheltered way to save for retirement. Have you ever wondered what an RRSP is, how it works, and why you should get one? In this article, we’ll explore all the key information about RRSPs, from eligibility requirements to withdrawing funds.

Schedule a call For Disability Insurance

Need insurance answers now?

Call 1-888-601-9980 to speak to our licensed advisors right away, or book some time with them below.

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is a savings and investment plan specifically designed for retirement. What you save in this account will be a part of your income in retirement when you are no longer working. It allows you to set aside pre-tax income, thereby reducing your taxable income in the current year. The money you contribute to an RRSP can be invested in any number of ways, such as stocks, bonds, mutual funds, and GICs.

Unlike non-registered investments, the growth of your RRSP is sheltered from taxation until you withdraw the funds at retirement or later transfer them into a Registered Retirement Income Fund (RRIF). An RRSP also offers other benefits, such as allowing you to save more quickly and conveniently than traditional savings accounts while still helping you build long-term wealth.

Types of RRSPs

There is a wide range of registered plans out there that, depending on your risk tolerance and investment decisions, can create big returns for your retirement savings. Some RRSPs have portfolios that are mutual fund heavy, some that are Exchange-Traded Funds (ETFs) heavy, and some that are balanced. Your financial institution should have a range of investor profiles and investment options for you. Some RRSP investments include:

  • GICs
  • Mutual funds
  • Government and corporate savings bonds
  • Exchange-Traded Funds (ETFs)
  • Securities listed on a designated stock exchange
  • Income Trust funds
  • Corporate shares
  • Foreign currency

Spousal RRSP & Common Law RRSP

Depending on your marital status, you may consider setting up a spousal or common-law partner RRSP to help distribute retirement income more equally between partners. This type of plan is particularly advantageous when a higher-income partner contributes to an RRSP for their lower-income partner. The primary contributor can benefit from a tax deduction for their contributions, while the other spouse, who is expected to be in a lower tax bracket during retirement, can receive the income and report it on their income tax and benefits return.

Self-directed RRSP

If you would like to have more control over building and managing your investment portfolio, you may consider a self-directed RRSP. With this type of RRSP, you can buy and sell various types of investments based on your preferences. Before going ahead with this type of RRSP, it’s important to consult with your financial institution.

How does an RRSP work?

An RRSP is a savings plan that you set up with your financial institution. You can contribute any pre-tax income to it, which reduces your taxable income in the current year. Any investments made within the RRSP are sheltered from taxation until you withdraw the funds or transfer them into a Registered Retirement Income Fund (RRIF).

You can choose from a variety of investment options, such as stocks, bonds, mutual funds, and GICs. This allows you to build long-term wealth in addition to saving more quickly and conveniently than traditional savings accounts. You can make contributions in your individual RRSP account, but you may also have employer contributions. Some workplaces may match each dollar you contribute to your RRSP or a percentage of your annual income.

The money inside an RRSP grows tax-free until you’re ready to withdraw it at retirement or later transfer it into an RRIF. Once you reach the age of 71, you must begin withdrawing money from your RRSP or convert it into an RRIF.


Both Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) are great options for saving money, but they each have their own unique benefits.

An RRSP is designed to help you save for retirement. Contributions are tax-deductible, meaning that any money you contribute to an RRSP reduces your taxable income in the year it was made. Furthermore, any investment earnings within the plan grow tax-free until you withdraw them at retirement or later transfer them into a Registered Retirement Income Fund (RRIF).

A TFSA, on the other hand, is more flexible and can be used to save money for any purpose. It is designed to help individuals save for short and long-term goals. Contributions are not tax-deductible, but the money grows tax-free within the plan and you don’t pay taxes on withdrawals either. Furthermore, unused contribution room carries forward into future years and accumulates over time.

When deciding between an RRSP or a TFSA, it’s important to consider your goals and objectives. If you’re looking for a way to save for retirement in a tax-efficient manner, then an RRSP may be the best option for you. However, if you want more flexibility and access to your funds, then a TFSA could be a better choice.

The good news is, you can have both savings accounts at the same time—a TFSA for your short-term goals and an RRSP for your long-term retirement plans.

Who is eligible for an RRSP in Canada?

In Canada, you must be a Canadian resident 18 years of age or older to open an RRSP. You also need to have earned income from employment or self-employment in the year for which you are making your contribution. The maximum amount of money you can contribute to an RRSP each year is set by the Canada Revenue Agency (CRA) and is based on your income in the previous year. You can find out how much you’re able to contribute as well as deduction limits on the CRA website.

One thing to note: there is an age limit on RRSP contributions. You can contribute to an RRSP until December 31st of the year in which you turn 71 years old. Any unused contribution room carries forward into future years and accumulates over time.

Moreover, there are special rules that apply if you leave Canada permanently and cease to be a Canadian resident (more on that below!).

Author Photo
Just like life insurance, an RRSP can be a powerful tool for securing your financial future. It’s an investment in yourself and your loved ones.
Polygon for chat box pointer
Carly Griffin
Senior Life Insurance Advisor,

Why should I get an RRSP?

An RRSP is a great way to save for retirement, but there are other benefits too! Contributing to an RRSP helps you lower your taxable income, which can result in significant tax savings. Because the money in an RRSP grows with a tax deferral, your investments will compound faster than if you were investing outside of an RRSP. In addition, any withdrawals from an RRSP are taxed as income when you receive them, so you may be able to withdraw funds at a lower rate than if you had withdrawn them prior to retirement.

Using an RRSP can also help with estate planning. By naming beneficiaries on your account and transferring it upon death directly to those beneficiaries, you can avoid paying taxes on the value of the account at that time. This is especially helpful if you want to ensure that the money goes directly to your heirs and not into the hands of creditors or taxes first.

Overall, having an RRSP provides many advantages, including saving for retirement (tax-deferred), reducing your taxable income (which could result in tax savings), and helping with estate planning.

How to set up an RRSP

To set up an RRSP, you can contact one of the following financial institutions:

Every institution has different portfolios they offer and each will have a different interest rate of investment gain.

When can I withdraw my RRSP?

Withdrawing funds from your RRSP can be a great way to access money during retirement, but there are some restrictions in place. Generally speaking, you can start withdrawing funds from your RRSP at age 59 1/2 without having to pay any penalties or taxes. However, if you withdraw before this age you may have to pay a penalty and the withdrawn amount will be taxed as income.

It’s important to note that if you’re making regular withdrawals from your RRSP, the government may consider it as income and there may be tax implications.

Lifelong Learning Plan

The LLP allows you to withdraw up to $10,000 in a calendar year from your RRSPs to finance full-time training or education for you or your spouse or common-law partner.

RRSPs for non-residents

While RRSPs are a uniquely Canadian product, non-residents of Canada are eligible to open and contribute to an RRSP. However, there are some stipulations and rules about contributions and withdrawals if you are outside of the country.

Do you have to live in Canada to contribute to RRSP?

No, you don’t have to live in Canada to contribute to an RRSP. However, there are some differences between how a non-resident’s RRSP works versus those held by residents.

One of the main differences is that non-residents cannot deduct contributions to their RRSP from their income for tax purposes. Non-residents also have to pay withholding taxes on any money withdrawn from their RRSPs, which range from 15% up to 30%. Additionally, foreign investment income may be subject to an additional 25% tax when withdrawn from an RRSP.

Despite these differences, having an RRSP as a non-resident can still be beneficial in other ways. You can grow your retirement savings while earning interest or investing in stocks or mutual funds. And any money you do eventually withdraw will not be taxed if it remains in Canada and is not sent back to your home country.

What happens to an RRSP if you leave Canada?

If you leave Canada, what happens to your RRSP depends on a few factors. If you’ve been a resident of Canada for less than five years, the government may require you to close your RRSP and pay tax on any contributions and investment income that has accumulated in the plan.

However, if you’ve been a resident for at least five years, then you can keep your RRSP open and continue to contribute or withdraw from it if you wish. You will still be subject to withholding taxes on any withdrawals, as well as the additional 25% foreign investment income tax.

Whether or not it makes sense for you to keep your RRSP open when leaving Canada depends on factors such as how much money is in the plan, whether the investments are performing well, and what kind of retirement savings options are available in your new home country.

Can a US citizen contribute to an RRSP?

Yes, it is possible for a US citizen to contribute to an RRSP. However, there are some important considerations to take into account before doing so. First of all, you must have an eligible Canadian source of income in order to make contributions. This can be from employment income, self-employment income, or certain types of investments.

Second, you will be subject to withholding taxes on any withdrawals from your RRSP and may also need to pay the additional 25% foreign investment income tax. Finally, if you leave Canada for more than five years and don’t close your RRSP before then, you may be subject to additional taxes when you do eventually close the plan.

Can you withdraw from RRSP from outside Canada?

Yes, you can withdraw from your RRSP from outside Canada. However, you should be aware that there are a few key considerations to take into account before doing so. First of all, if you do not meet certain conditions (such as having an eligible pension plan), then you may be subject to withholding taxes on any withdrawals from your RRSP. Additionally, if you have been out of the country for more than five years and do not close your RRSP before then, you may also be subject to additional taxes when you eventually close the plan.

Furthermore, it is important to remember that, depending on where in the world you are withdrawing funds from and how long they stay overseas, there may be foreign exchange rates and other fees associated with this process.

How to claim your RRSP deduction

When filing your taxes with the Canadian government, you may be able to claim a deduction for contributions made to your RRSP (Registered Retirement Savings Plan). The amount you can deduct typically depends on the amount of RRSP contributions that you made during the year as well as any unused contribution room carried forward from prior years.

To claim your deduction, first make sure to have all of your RRSP records handy, such as receipts and statements. Then enter the total contributions made in the current tax year when you file your taxes. This will generally be reported using box 20 of your T4RSP slip or form T2205.

Make sure to keep all of these documents in case they are needed at a later date. If you did not deduct all of the contributions you made to your RRSP, you can either leave the unused contribution in the plan or you can withdraw them (but this withdrawal will be included as income on your income tax return).

Once this step is complete, simply enter the total amount claimed on line 208 of Schedule 7 of your tax return form and then subtract this amount from your net income for the year. This will then reduce the overall taxes that you owe for the year and increase your refund or lower what needs to be paid in taxes.

Frequently Asked Questions 

What is a good RRSP interest rate?

The average rate of return for RRSPs is around 3-4%, but some financial institutions may offer high-interest savings accounts for up to 5%. It is important to find an interest rate that you are comfortable with and that fits your objectives.

How much money should I put in an RRSP?

The amount of money you should put in an RRSP (Registered Retirement Savings Plan) depends on several factors. These include your current income, your retirement goals, and your financial obligations. Generally, financial advisors recommend contributing between 10-20% of your income to your RRSP. However, it’s important to consider your current financial situation and other investments before making a decision. It’s always wise to seek advice from a financial advisor to ensure that you are making the best decision for your financial future.

When should I start an RRSP?

The best time to start contributing to an RRSP (Registered Retirement Savings Plan) is as soon as possible. The earlier you start, the more time your investments have to grow tax-free. Ideally, you should start contributing to your RRSP in your early 20s, as this will give you the most time to save for retirement. However, it’s never too late to start. Even if you are in your 40s or 50s, contributing to an RRSP can still provide significant benefits for your retirement savings. The key is to make regular contributions and take advantage of tax breaks and compound interest to maximize your savings.

What is the RRSP contribution deadline?

The yearly contribution deadline for RRSPs is typically March 1st. This means that you have until this date to make contributions to your RRSP for the previous tax year and claim them on your tax return. It is important to note that the contribution limit for RRSPs varies depending on your income and other factors, so it is crucial to consult with a financial advisor or accountant to determine your individual contribution limit. Missing the RRSP contribution deadline can result in missed tax benefits and a potential loss of savings for your retirement.

What is the RRSP contribution limit?

The RRSP annual contribution limit (also known as a pension adjustment) is calculated as a percentage of your earned income and is subject to a maximum limit set by the government. The maximum contribution limit for the 2021 tax year is $27,830 or 18% of your earned income from the previous year, whichever is lower.

Planning for your retirement

To find out if an RRSP is an effective investment strategy for you and your long-term financial security, we recommend speaking to an investment professional. They can walk you through the types of investment funds that will both help you grow your savings and give you the biggest tax advantage. We work with a number of investment managers and financial institutions that provide RRSPs and other retirement savings vehicles.

Life insurance can also be used to support your retirement income. Speak to one of our expert advisors to find out how the dividends from a whole life insurance or universal life insurance can provide you retirement income today!

Need help?
Call us at 1-888-601-9980 or book time with our licensed experts.
By Carly Griffin
Senior Insurance Advisor, LLQP
Connect with author

Want more like this in your inbox? Subscribe to our newsletter.