RRSP basics – the ABCs of RRSPs

Aug 12, 2021

What is an RRSP?

A registered retirement savings plan (RRSP) is a special kind of investment account designed to help you save for retirement. It is registered with the Government of Canada. You can contribute funds to an RRSP for yourself, and you can also contribute to an RRSP for your spouse or common-law partner. Your contributions to an RRSP are tax deductible and can be used to reduce your tax.

You can use the contributions to purchase investments, and the gains and income generated from those investments are not taxed as long as the funds remain in the plan. However, withdrawals from your RRSP are treated as taxable income.

What is a self-directed RRSP?

With a self-directed RRSP, you have the freedom to oversee the investments in your RRSP. You can make all the decisions about which investments to buy or sell, and manage your account when it’s most convenient for you.

What types of investments can I hold in an RRSP?

You can hold a wide range of investments within an RRSP, including stocks, ETFs, mutual funds, bonds, GICs, and cash.

How much can I contribute to my RRSP?

There are limits to how much you can contribute each year to your RRSP or to your spouse’s RSP. The maximum allowable contribution for the 2020 taxation year was: $27,230. Your allowable contribution room is the lower of:

  • 18% of the earned income reported on your tax return for the previous year
  • The maximum annual contribution limit for the year, which is set by the government
  • The remaining limit after any employer-sponsored pension plan contribution
  • You can carry forward unused RRSP contribution room since 1991.

To find out the exact amount you can contribute this year, as well as your carry-forward contribution room, check your most recent Notice of Assessment from Canada Revenue Agency (CRA), or log in to your online account with CRA.

Is there an annual deadline to contribute to an RRSP?

In order to be eligible for an RRSP deduction in a specific taxation year, you can make contributions anytime during that year, or up to 60 days into the following year.

How long can I contribute to an RRSP?

You can contribute to your RRSP until December 31 of the year in which you turn 71. After that, you must withdraw the assets, convert them into a registered retirement income fund (RRIF) or purchase an annuity.

When can I start contributing to an RRSP?

There is no minimum contribution age, but you must have earned income reported to CRA. The sooner you start contributing to your RRSP, the better, in order to take advantage of the power of compounding.

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