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We’ve all heard the term RRSP and more than likely we have been told our banks, tax advisors, or accountants that it is something that we should be contributing to. RRSP’s can be an effective retirement savings tool, but it is important to understand how they work to determine if, and when, we should be contributing.


RRSP stands for Registered Retirement Savings Plan. RRSPs were introduced by the government in 1957 as a tool to help Canadians save for retirement. RRSP are not tax-free, but rather are a tax deferral strategy. This means that contributions you make today are tax deductible and reduce your current year taxable income. The taxes on the income are deferred until you withdraw the funds at a future date, ideally during retirement. 


The greatest benefits are enjoyed when you make contributions to your RRSP when you are in a high tax bracket and when you withdraw the funds in a lower tax bracket. In most cases, people have less income during retirement so the withdrawals are not subject to higher tax rates.

The RRSP contributions, along with the investment income earned on the money, are not subject to tax until you withdraw money from the plan. Although the idea of an RRSP is to save money for retirement, you can withdraw money from the plan whenever.


There are restrictions on the amount of money that can be contributed to your RRSP. Your annual RRSP contribution is limited to the lesser of 18% of your prior year’s earned income or a maximum amount (the 2019 maximum contribution is $26,500). If you don’t contribute to your RRSP annually, your contribution limits accumulate and carry forward for future use. Your most recent Notice of Assessment will show how much contribution room you have remaining.

To enjoy the tax deduction on your 2019 personal income tax return, your contributions must be made during the year or within the first 60 days of 2020. Contributions after this date will be considered on your 2020 return.

It is important to be mindful of your contribution limit as over contributions can carry stiff penalties. Contributions in excess of $2,000 of your limit will be subject to a 1% monthly penalty until the excess is removed from the plan.


Once you turn 71, your RRSP needs to be closed and the funds withdrawn or converted to a RRIF or annuity. At this point in time you may choose to do some planning to ensure adequate cash flow to fund your retirement while also be mindful of other sources of income and potential clawback of Old Age Security.


This blog covered the basics of RRSPs; however, there are some other considerations depending on your personal situation. A few of these include:

  • Contributing to a spousal RRSP
  • Home Buyers’ Plan
  • Lifelong Learning Plan

To learn more about RRSP’s and whether they would be beneficial to you contact me at (403)743-0571 or

Krystal Stoutenberg, CPA, CA
(403) 743-0571