Shelter your retirement savings from taxes
If you’re saving for retirement, you want your money to grow steadily and reliably so you know you’ll have enough to live day-to-day and enjoy life when you have more time on your hands. Your contribution to an RRSP is tax-deductible, up to your deduction limit, so you save on taxes each year you contribute. An RRSP also helps you reach your financial goals for your retirement efficiently because you don’t pay tax every year on the growth of your investments. Instead, the money you would have paid in taxes continues to grow inside the plan. You do have to pay taxes on the amount of any withdrawal.
Accelerate your retirement savings with these RRSP strategies:
- Save more when you:
- Start early—you can open an RRSP at any age if you earn an income and file a tax return; the longer your investments enjoy tax-deferred growth, the better for you
- Set up regular contributions—you can even apply to reduce the taxes your employer deducts from every paycheque and contribute your extra paycheque income to your RRSP
- Catch up to your personal contribution limit. You can find your personal contribution limit on your most recent Notice of Assessment, or you can check the CRA site for more options. Consider contributing your tax refund, bonuses and other windfalls, or taking out an RRSP loan* that you pay back as soon as you receive the tax refund for your contribution.
- Pay back on time to save taxes when you borrow from your RRSP to:
- Buy a first home through the Home Buyers’ Plan
- Pay for your education through the Lifelong Learning Plan
- Help manage risk due to inflation and market unpredictability with a diversified portfolio designed to meet your personal goals
* Borrowing to invest in an RRSP may not be appropriate for everyone. You will need the financial resources to meet your loan obligations in full. Talk to your advisor to find out more about the advantages and obligations of borrowing to invest.
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Frequently asked questions
You can contribute up to your deduction limit. In any given calendar year, your RRSP deduction limit is equal to 18% of your earned income for the previous year, up to the maximum RRSP limit, adjusted for amounts reported to you that reflect the value of the benefits provided by your employer’s pension plan, plus your unused RRSP deduction room left over from prior years. If you don’t make the full contribution, you can carry forward your contribution room.
You can contribute any time before the end of the year you turn 71, as long as you have contribution room. If you want to deduct your contribution from this year’s taxes, you must contribute before the RRSP deadline, which is 60 days after the end of the year, or by December 31stof the year you turn 71.
You can use your contribution room to contribute to a spousal RRSP (an RRSP that is owned by your spouse but that you contribute to). Your spouse would be taxable on any withdrawals from a spousal RRSP provided you have not contributed to any spousal RRSP in the current or preceding two calendar years. This can be an effective income splitting strategy today and in retirement. However, if you have made a contribution to any spousal RRSP in the current or preceding two calendar years, the amount of the withdrawn (up to the amount of your contribution) will be included your income for that year.
You can withdraw your money at any time, but in most cases you have to pay tax. Unless you’re using the Home Buyers’ Plan or Lifelong Learning Plan, it’s generally better to wait to make withdrawals until you retire.
You can borrow up to $25,000 from your RRSP to buy a qualifying first home through the Home Buyers’ Plan. As long as you pay the money back on time, over a period of 15 years, you don’t have to pay tax on your Home Buyers’ Plan withdrawal.
You can borrow up to $10,000 in a calendar year and up to $20,000 in total from your RRSP to pay for a qualifying educational program through the Lifelong Learning Plan. As long as you pay the money back on time, over a period of 10 years, you don’t have to pay tax on your Lifelong Learning Plan withdrawal.
When you retire, and no later than the end of the year you turn 71, you can convert your RRSP into:
- A Registered Retirement Income Fund (RRIF)—a registered plan that provides taxable income in retirement and lets the balance of your money continue to grow tax-free until you withdraw it
- An annuity—an insurance solution that pays you a set amount of taxable income for life or to age 90
- Cash—a lump sum taxed as income in the year you receive it