What is an RRSP?
A Registered Retirement Savings Plan (RRSP) lets Canadians contribute pre-tax dollars, take a tax deduction, and grow investments tax-deferred until withdrawal. Contribution room equals 18% of last year’s earned income up to the annual dollar limit, reduced by any pension adjustment; unused room carries forward. For 2025 the RRSP dollar limit is $32,490. Canada.ca+1
Key dates
- Contribution deadline for the 2024 tax year: March 3, 2025 (first 60 days of 2025).
- Last day to contribute to your own RRSP: December 31 of the year you turn 71. Canada.ca
Why RRSPs are powerful
- Immediate tax deduction (reduce taxable income now).
- Tax-deferred growth on interest, dividends, and capital gains. Budget Canada
- Optional programs that let you withdraw without withholding tax if you follow the rules:
- Home Buyers’ Plan (HBP): withdraw up to $60,000 per person to buy/build a first home; repay over time. Increase applies to withdrawals after Apr 16, 2024. Canada.ca+1
- Lifelong Learning Plan (LLP): up to $10,000 per year, $20,000 total for education; repay per CRA schedule. Canada.ca+1
How withdrawals are taxed
Regular withdrawals are taxable income and trigger withholding at source by your financial institution:
10% up to $5,000; 20% on $5,000–$15,000; 30% over $15,000 (Quebec has different combined rates). Actual tax owing depends on your year-end marginal rate. Canada.ca
Spousal RRSP (income-splitting tool)
You contribute to a plan in your spouse/partner’s name and claim the deduction; withdrawals are taxed to the annuitant spouse if funds remain invested at least three calendar years after the last spousal contribution (attribution rules apply). (General CRA guidance on RRSP deductions/limits applies.) Canada.ca
Step-by-step: Set up and fund an RRSP (2025)
- Find your room: Check your latest CRA Notice of Assessment for your RRSP deduction limit and carry-forward space. Canada.ca
- Pick an RRSP type: bank/robo, or self-directed for ETFs/stocks/bonds.
- Automate contributions: monthly/bi-weekly to smooth markets and hit the deadline.
- Asset mix: align to horizon—more fixed income near retirement, broadly diversified ETFs for growth.
- Name a beneficiary (and successor annuitant rules for spouses).
- At 71: convert to a RRIF or annuity, or cash out (usually tax-inefficient). Canada.ca
RRSP vs TFSA vs FHSA (quick compare)
| Feature | RRSP | TFSA | FHSA |
|---|---|---|---|
| Tax on contribution | Deductible | Not deductible | Deductible |
| Tax on growth | Tax-deferred | Tax-free | Tax-free |
| Tax on withdrawal | Taxed (except HBP/LLP rules) | No tax | No tax if for first home |
| 2025 dollar limit | $32,490 (18% of income cap) | — | $8,000 annual / $40,000 lifetime |
| Best for | High earners expecting lower retirement tax rate; long-term compounding | Any bracket; flexible goals | First-time home buyers |
Notes: RRSP limit per CRA; TFSA 2025 limit confirmed at $7,000 (separate program); FHSA rules per CRA. Canada.ca
Common mistakes (and fixes)
- Only watching the refund: a refund now can mean higher tax later if you withdraw in a high bracket—plan your RRSP↔RRIF drawdown.
- Ignoring pension adjustments: workplace pensions reduce RRSP room—always verify your CRA limit first. Canada.ca
- Forgetting the deadline: contributions in the first 60 days can be applied to the prior year—use automation in January/February. Canada.ca
- Withdrawing early: triggers withholding and income tax—consider TFSA for short-term needs or HBP/LLP if eligible. Canada.ca+2Canada.ca+2
Quick planning ideas (2025)
- High-income year? Max RRSP to reduce tax now; invest the refund.
- First home goal? Prioritize FHSA + RRSP HBP to stack benefits. Canada.ca
- New to Canada / thin file? RRSP contributions don’t depend on credit history—start once you have earned income and contribution room.
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