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Published: March 4, 2020

Last Updated: October 21, 2022

Contributing to your Registered Retirement Savings Plan (RRSP) is a great way to invest, save for retirement and earn some tax savings along the way. A RRSP account can be set up with all the major banks in Canada and with most financial institutions such as credit unions, trusts or insurance companies. Canadian taxpayers can contribute money into this retirement savings account to invest in mutual funds, GICs, and other qualified investment securities (but not all investments are qualified for RRSP account), up to an allowable limit per year. The allowable amount for each year depends on your previous years’ unused contribution and your current year’s earned income. The contribution can be deducted from income for tax purposes, which results in immediate tax savings. In addition, the income from the investments, or capital gain from selling the investments do not attract tax as long as the money remains in the RRSP account.

The withdrawn amount from an RRSP will have to be included in income for the year of withdrawal. If taken out too early, withdrawals of funds from RRSPs penaltiesfully taxable and subject to withholding deductions to pay part of the tax laibility . For this reason, it is advisable to withdraw money from RRSP when there are no low source of other of other income.

Setting up and contributing to a spousal RRSP account is a good way to achieve income splitting if one spouse is in a higher tax bracket than the other. A spousal RRSP allows one spouse to contribute to the RRSP account on behalf of the other spouse. The contributing spouse can deduct the contribution from taxable income and see immediate tax savings. The ‘receiving spouse’ (known as the annuitant) will need to pay tax upon the funds withdrawn in retirement, but will likely pay tax at a much lower rate than the contributing spouse. If the annuitant spouse withdraws money before retirement, and if the contributor spouse contributed in the preceding two years before the withdrawal, then the amount of withdrawal needs to be included in the income of the contributor spouse for the year of the withdrawal

In addition, you can also withdraw from your RRSP account up to $25,000 for a down payment for your first home under the Home Buyers’ Plan (HBP), and up to $20,000 to pay education costs for you or your spouse under the Lifelong Learning Plan (LLP). These withdrawals are tax- exempt at the time of withdrawal if you pay the money back within a specified time period.

December 31 of the year you turn 71 years old is the last day that you can contribute to your RRSP. At age 71, you must withdraw the funds from the RRSP, transfer them to a RRIF, or use them to purchase an annuity.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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