Registered Retirement Savings Plan (RRSP)

You open an RRSP with a bank, credit union, brokerage or insurer, and it can hold cash, GICs, stocks, bonds, mutual funds and ETFs. The tax deal has three parts: contributions are deductible, income earned inside the plan isn’t taxed while it stays there, and withdrawals are taxed as income in the year you receive them.

Each deducted dollar saves tax at your marginal tax rate, which is where the familiar RRSP refund comes from. You don’t have to claim it in the year you contribute: an undeducted contribution can be carried forward and claimed in a later, higher-income year, when it saves more.

Because tax is postponed rather than forgiven, an RRSP is a bet on tax rates. Deduct at 30% and withdraw at 20%, and you keep the difference. If a pension, CPP, Old Age Security and required RRIF withdrawals push your retirement income into a higher bracket, the advantage shrinks or reverses.

Your room for a year, called your RRSP deduction limit, is built from the year before. For 2026 it is 18% of your 2025 earned income, capped at the 2026 dollar limit of $33,810, minus your pension adjustment, plus any room you haven’t used in earlier years. Earned income is mainly salary and net self-employment income; interest, dividends, capital gains and pension income don’t create room. The pension adjustment is the value of the benefits you earned the previous year in a workplace pension or deferred profit-sharing plan, so members of a generous defined benefit plan get much less RRSP room. Unused room carries forward with no expiry.

Your limit appears on the RRSP Deduction Limit Statement in your latest notice of assessment. Contributions made during 2026 and in the first 60 days of 2027 count toward 2026, and you can keep contributing to your own RRSP until December 31 of the year you turn 71.

Two guardrails apply. Contributions more than $2,000 over your limit are generally taxed at 1% a month, and withdrawals never restore room: money taken out of an RRSP permanently uses up the room it came from.

You can withdraw from an RRSP at any age and for any reason. Canada has no equivalent of the US 10% early withdrawal penalty; the cost is income tax. The whole withdrawal is added to your income for the year, and the plan withholds tax up front: outside Quebec, 10% on amounts up to $5,000, 20% on amounts over $5,000 up to $15,000, and 30% on amounts over $15,000. Withholding is a prepayment, not the final bill, so a withdrawal taken in a high-income year can leave you owing more when you file.

Two programs let you borrow from your RRSP without tax, provided you pay the money back on schedule:

A spousal RRSP lets the higher earner contribute to a plan owned by their spouse or common-law partner. The contributor uses their own room and claims the deduction, but withdrawals are later taxed on the partner’s return, ideally at a lower rate.

The catch is attribution: a withdrawal is taxed back to the contributor if they paid into any spousal plan that year or in the two years before. If your last spousal contribution was in 2026, a withdrawal in 2029 or later is taxed to your partner.

If your partner is younger, you can keep contributing to a spousal RRSP, using your own room, until the end of the year they turn 71. From 65, pension income splitting can shift up to half of eligible RRIF income between returns, so a spousal RRSP matters most for couples who retire earlier or whose savings are very uneven.

Canadians usually weigh an RRSP against a TFSA. The RRSP gives the tax break on the way in, the TFSA on the way out, so with the same tax rate at both ends they leave you with the same after-tax money. The RRSP comes out ahead when your rate in retirement is lower than the rate at which you deducted, and the TFSA wins when it is higher, as the worked TFSA vs. RRSP example shows. Many households hold both, a Canadian form of tax diversification.

For readers who know American accounts, an RRSP is the counterpart of a traditional IRA or a pre-tax 401(k), built on the same tax deferral. The main differences:

December 31 of the year you turn 71 is the last day to contribute to your own RRSP, and by then the plan must be wound up. You can transfer it to a registered retirement income fund (RRIF), which stays invested and pays at least a yearly minimum; buy an annuity that pays a guaranteed income; or withdraw it as cash, which adds the whole balance to that year’s income. Transfers to a RRIF or an annuity have no withholding tax. A RRIF has no minimum in the year it is set up, so converting at 71 puts the first required withdrawal in the year you turn 72.

Any Home Buyers’ Plan balance still owed can be repaid in the year you turn 71; after that, each year’s required repayment is included in your income.