Registered Retirement Savings Plans (RRSP)

Created in 1957 by the Federal Government, RRSP's are the most popular way for Canadians to save for retirement and are a main pillar of Canada's retirement income programs. When you contribute money to an RRSP 100% of that contribution is tax deductible against other sources of income.  This can create large tax refunds when you file your tax return, in some cases (depending on the province you live in) up to 50% of what you contributed. In a highly taxed jurisdiction such as Canada it is no wonder they are as popular as they are.  Investment income earned within an RRSP is not taxed until it is withdrawn, at which point it is fully taxable.

Canadians can contribute up to 18% of their prior years income to an RRSP.  The maximum contribution for 2013 is $23,820.  Going forward this will be indexed to the rate of inflation.  In order to create RRSP room equal to that amount the required 2012 income is $23,820 divided by 18% or $132,333.33.

Inidividuals may be able to contribute more than that because every year that you do not contribute the maximum amount the unused portion carries forward.  In 2010 only about one quarter of eligible tax filers made an RRSP contribution, and the total amount of unused RRSP contribution room is estimated to be over $1 trillion.

RRSP contributions can be invested in many different types of investments. These include mutual funds, segregated funds, GIC's, and more.  Contact us for more information about what investments are appropriate for you to own in an RSP based on your investment knowledge, time horizon and risk tolerance and other factors.  

There are different RRSP plans available:

  • Individual RRSP's - you need to have room to contribute.  Money is deposited to the plan and you receive a tax receipt which you can claim as a deduction on that years tax return or future years returns.  If you think your income will be higher in a future year you could delay claiming the deduction until then in order to get a larger tax refund.  In the meantime the investment grows on a tax deferred basis.
  • Spousal RRSP's - if your spouse has higher income than you, and has contribution room, then it may make sense to use this strategy. Your spouse would contribute to a plan in your name.  The spouse receives the tax receipt, and then in the future you can withdraw the money and pay tax at your tax rate rather than your spouses rate. It is a good way to split income where there is a significant difference in income between spouses.
  • Group RRSP's - these plans can be either individual or spousal, but contributions are made in pre-tax dollars. You get your tax deduction on each paycheque rather than when you file your taxes, and  your deposit comes off your pay before you receive it so it is a good forced savings plan . More information is available on our Group RRSP page.

RRSP's may not be the best option for everyone, and there are different planning strategies available to get the most out of them.  Contact us for more information and visit our Investment Calculators Page to use the RRSP calculators.