RRSP Contribution Limits & Withdrawal Rules
A Registered Retirement Savings Plan (RRSP) is a powerful tool to save for retirement while reducing your income tax. Learn more about annual contribution limits and withdrawal rules to help you grow your retirement savings faster.
What is an RRSP and why does it have a contribution limit?
An RRSP is a tax-advantaged account designed to help you save for retirement. Any Canadian resident who is 71 or younger and has had earned income can open and fund an account.
Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan.
You can open multiple RRSP accounts, but there’s a limit on how much you can contribute in total, which is set by the Canada Revenue Agency (CRA) annually.
Benefits
Why contribute to an RRSP?
Contributing to an RRSP is a good idea for several reasons. Think of it as a nest egg you can rely on once you’ve retired and are no longer earning employment income.
Drive financial security
Opening and regularly contributing to your RRSP helps you build a reliable income stream to maintain your lifestyle and financial independence after retirement.
Save on taxes
RRSP contributions can reduce your taxable income. Plus, most investment growth inside your RRSP is tax-deferred, so more of your money can stay invested and grow faster.
Diversify your portfolio
While you can park cash in an RRSP, you can also use it to create a balanced, custom portfolio with several types of investments, including stocks, bonds, mutual funds, GICs, and ETFs.
Optimize your deductions
You don’t have to use all your RRSP contribution room right away. You can strategically carry it forward to a year when you’re in a higher tax bracket, resulting in greater potential tax savings.1
RRSP contribution, deduction, and withdrawal rules
Knowing the rules and requirements that come with your RRSP can help you avoid penalties and unexpected costs.
Eligibility: To open and contribute to an RRSP, you must be a Canadian resident with a valid Social Insurance Number (SIN) and have filed at least one Canadian tax return reporting earned income. You can’t open or contribute to an RRSP after December 31 of the year you turn 71.- Contribution limit: Each year, you earn new RRSP contribution room, which is 18% of your earned income from the previous year, up to an annual limit set by the CRA.
- Pension adjustments: Any registered pension plan (RPP) contributions you have are reported as a pension adjustment (PA) on your T4 or by the CRA. This reduces your RRSP contribution room for the following year.
- Unused contribution room: RRSP contribution room is cumulative. If you don’t use all your room in a given year, the unused portion carries forward indefinitely. This means you can add it to your new limit and increase your contribution room in future years.
- Over-contributions: Provided you are over 18, you are allowed a $2,000 lifetime buffer for over-contributions without penalty. If you exceed the annual limit, the CRA will penalize you with a 1% tax per month on the excess until you withdraw it or earn new contribution room.
- Spousal RRSPs: A spousal RRSP is a special type of RRSP that allows one spouse (usually the higher earner) to contribute in their partner’s name, using the contributor’s annual limit. Contributions are deductible by the contributor but owned and withdrawn by the spouse.
- Deduction limit: Your RRSP deduction limit is the maximum amount you can deduct from your contributions for a year. The CRA calculates it based on your unused deduction room at the end of the previous year, plus 18% of your prior year’s earned income (up to an annual limit), adjusted for pension adjustments and reversals.
- Tax reporting: You can deduct eligible RRSP contributions on your tax return up to your deduction limit, but you can also carry over unused deductions to future years. Investment income and capital gains are not taxed until you withdraw the money. Note that withdrawals are taxed at your marginal tax rate.
- Timing: You can claim RRSP contributions made during the calendar year (January 1st to December 31st), or within the first 60 days of the following year, as a deduction for the current tax year.
- Pension adjustments: If you contribute to a registered pension plan (RPP), those contributions will reduce your RRSP deduction limit. This is reflected in your pension adjustment (PA), which is reported on your T4 slip.
To note: You cannot claim a deduction for any interest or borrowing costs you paid on loans for a contribution. Administrative costs and capital losses are also not deductible.
- Timing: You can withdraw funds from your RRSP at any time, even before retirement.
- Taxes: Withdrawals from your RRSP are considered taxable income in the year you make them. Your financial institution will withhold tax at the time of the withdrawal. However, the actual tax you owe depends on your total annual income and marginal tax rate.
- Tax rates: The tax rate applied to your withdrawal depends on the amount withdrawn and your residency status. In Quebec, rates differ and there is an added provincial tax.
- Effect on contribution space: Any withdrawals you make are not added back to your contribution room, effectively lowering your limit permanently.
- Registered retirement income fund (RRIF): After your RRSP reaches maturity on December 31 of the year you turn 71, you must convert it to a registered retirement income fund (RRIF). This type of savings account continues to grow tax-deferred, but you must withdraw a minimum amount each year, providing you with a regular income stream throughout retirement.
- Home Buyers’ Plan: If you’ve coupled your RRSP with the federal government’s Home Buyers’ Plan (HBP), you can withdraw up to $60,000 from your RRSP to help finance the down payment on your first home. This amount is not taxable provided you repay it within a 15-year period.
- Lifelong Learning Plan: Through the federal Lifelong Learning Plan (LLP), you can withdraw up to $10,000 per year—$20,000 total—to finance full-time education for yourself or your spouse/common-law partner. Withdrawals aren’t taxed if you repay 10% yearly, starting in the second year after your last withdrawal.
Note that you can check your contribution room and deduction limit on your annual Notice of Assessment or through your CRA account online.
Calculate your RRSP contributions
Use our RRSP calculator to see how your goals match your current financial situation, what you’ll need for retirement, and the best ways to get there.
FAQs
RRSP contribution limits
Generally, provided you stay under your annual limit, the more you contribute to your RRSP, the more you can pad your post-retirement lifestyle. Making the maximum contribution might not always be feasible, so make sure your approach aligns with your financial situation.
You can also consider applying for an RRSP loan to catch up on unused contribution room.
Unused RRSP contribution room carries over to your deduction limit for future years and will continue to accumulate.
You can contribute up to 18% of your previous year’s earned income to your RRSP, up to the annual maximum limit set by the CRA. You may contribute more than this if you have unused contribution room carried forward from prior years. Keep in mind your annual limit can also be reduced by factors like pension adjustments and spousal contributions.
If you overcontribute to your RRSP by more than $2,000, the CRA will penalize you with a 1% tax per month on your excess contributions.
While there’s no lifetime maximum for RRSP contributions, the CRA sets an annual contribution limit, which is added to your unused contribution room each year. This means you cannot add an unlimited amount of funds to your RRSP.
Plus, on December 31 of the year you turn 71, your RRSP reaches maturity, meaning you can no longer contribute to it and must convert it to an RRIF, withdraw the funds as a lump sum, purchase a life annuity, or do some combination of the three.When you contribute to a registered pension plan (RPP), your RRSP is impacted by something called a pension adjustment (PA), which is the estimated value of the pension you earned in a calendar year. To ensure those with pensions don’t get an unfair advantage in their retirement savings, your contribution limit is reduced by the value of your PA the following year. You can find this amount in box 52 on your T4 or box 034 on your T4A slip.
RRSP withdrawals
You can withdraw part of or the entire balance from your RRSP at any time, but the withdrawn amount is subject to withholding tax.
The withholding tax on RRSP withdrawals depends on the amount you withdraw and your residency status. Because they count as taxable income, RRSP withdrawals can also impact your marginal tax rate by pushing you into a higher tax bracket for that year.
For specific tax rates on RRSP withdrawals, check out the CRA website.
If there aren’t restrictions around the investments in your RRSP and your funds are not in a locked-in plan, you can withdraw funds from at any time without penalty. That said, note that your withdrawal is subject to withholding tax and must be included as income when you file your taxes.
The 3-year rule refers to an attribution rule specifically for spousal RRSPs. If your spouse contributes to a spousal RRSP and you withdraw funds from it in the same calendar year or within the following two years, the withdrawal may be taxed as your contributor’s income.
You cannot transfer money from an RRSP to a TFSA without incurring taxable income. Any investment transfer you make from an RRSP is considered a withdrawal at your investment’s fair market value.
Learn more about RRSPs
RRSP Withdrawal Basics and Options
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When to use RRSPs, TFSAs and RESPs
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TFSA vs RRSP: Here’s what you need to know
Wondering which one is best for your savings goals? Let’s go through the differences between a TFSA and an RRSP.
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1 This information is provided for general informational purposes only and does not constitute tax, legal, or financial advice. Contribution strategies may vary based on individual circumstances. Individuals should consult their own tax or financial advisor before making decision regarding RRSP contributions.