What is RRSP? Registered Retirement Savings Plan, Canada

what-is-rrsp-registered-retirement-savings-plan Canada

You must have heard that the earlier you start saving for your retirement, the better. This brings us to the notion of RRSP, which is the Canadian government’s Registered Retirement Savings Plan. 

But what is RRSP? Let’s have an insightful look at RRSP meaning.

What’s an RRSP?

RRSP Meaning: What does RRSP Stand For?

RRSP is short for Registered Retirement Savings Plan. It is a Canadian retirement savings plan that allows all Canadians to contribute to and save for retirement until 71 years of age.

All the income you contribute to the RRSP is not subject to tax until you want to withdraw. Having learned what RRSP means, let’s see how it works.

RRSP: How Does it Work?

When you open an RRSP, you get a chance to make annual contributions to your RRSP. You cannot contribute any amount since there’s a limit depending on your income. 

Also, with the help of an experienced financial professional, you may be able to use an RRSP to achieve your saving goals, including buying a home, starting a business, or going back to school.

It would be best if you withdrew all the extra income you make from the RRSP and the funds you contributed by December 31st, the year you turn 71.

Setting Up an RRSP

Setting up an RRSP account is simple and relatively straightforward. All you have to do is visit your financial institution and request help creating an RRSP account. Financial institutions will not only help you set up the account, but they will also help you create a monthly saving plan.

Besides that, they could also advise you on the best investment options to take up with your RRSP for extra income. When choosing the financial institution to go to, you may want to consider the following:

  • Low fees
  • Unlimited phone support
  • No minimum investment

Besides visiting a financial institution, you can do it yourself at home. With access to the internet, you can set up an RRSP account through a robo-advisor. After choosing the investment provider, you will create a password by giving your email address.

Who Can Set Up an RRSP Account?

Anyone that makes an income subject to tax in Canada can open an RRSP account. You, therefore, do not need to be a Canadian citizen to open an RRSP account. What you need, however, is to have taxable income in Canada.

What is the RRSP Contribution Deadline for 2022 Tax Year?

The RRSP contribution deadline for the 2022 tax year is March 01, 2023. Therefore, in order for you to claim a deduction for 2022 tax year, you need to contribute to your RRSP by this date.

What is a locked in RRSP?

The reason you have a locked-in account is because your company sponsored a pension plan for you at some point in time.

You could have had a few alternatives for what to do with the money you had saved up in your pension plan if you had left that employment before you were eligible to retire. A locked-in retirement account (LIRA), or RRSP, is a common choice for pension plan participants who are leaving their jobs.

A LIRA is comparable to an RRSP, but unlike an RRSP, there are limitations on how monies may be removed from the account at any time.

Unlocking an RRSP account that has been locked is a complicated process that is affected by a number of variables, including the province in which you worked at the time of your participation in the pension plan, your age, the amount of money in the account, and your residency status in Canada.


Can I Withdraw from The RRSP When I Have an Emergency?

The original idea by the government was for the Registered Retirement Savings Plan (RRSP) to be a way of someone securing their retirement by saving and not withdrawing until they retire. But life happens, and sometimes you have no other source of money, and you have an emergency.

Yes, you can withdraw some money from the RRSP when that happens. However, the amount will be treated as income and, therefore, be subject to tax. But what if you want to avoid paying the tax?

Take advantage of the below plans:

1. The Lifelong Learning Plan (LLP)

The Lifelong Learning Plan (LLP) allows you to withdraw a certain amount of money from your RRSP to fund your education. You, however, need to be a registered full-time student at an education institution for you to qualify for this plan.

Also, you will pay back the money within a given timeframe, depending on the amount you borrowed.

2. The Homebuyers Plan (HBP)

The Homebuyers Plan (HBP) is another way to withdraw from the RRSP without paying tax. For this plan, you need to be a first-time homebuyer looking for funds to pay the house deposit.

That means you and your spouse should not have bought a house in the last four years. If you combine your income, you can borrow up to $70,000 to buy your first home.

Again, you will need to pay back this money to the RRSP to continue enjoying the benefit of paying no tax.

RELATED >> Canada’s First-Time Home Buyer Incentive

The above are the recommended ways to withdraw from the RRSP without penalties. It would interest you to hear that Canadians use both plans simultaneously.

However, there is a final way you can do that. That’s to withdraw some money when you have no income or your income is too little to sustain you.

There are limits to what income the government would term too little to sustain you. Unless you are willing to take advantage of the above plans, it is better to wait until your retirement is up to withdraw from the RRSP with more favourable tax outcomes.

What are the Benefits of RRSP?

What is rrsp

The most apparent benefit of contributing to an RRSP is having some money set aside for your retirement. Here’s the deal, though, you will be charged less on tax when you want to withdraw your money once you retire.

That’s because all the money you contribute to the RRSP as you work has their taxes deferred. That means you will pay deductible tax in the future when you withdraw the money and not now. The reasonably lower taxes will be higher in the future than at present.

To put that into context, let’s assume you earn an annual salary of $70,000. Now, if you make contributions to an RRSP, that will translate to $12,600 annually. So, when you withdraw after you retire, the tax will apply to the remaining $57,400 after deducting the annual contributions.

The final benefit of RRSPs is that they don’t have a minimum age to start contributing. You can start as soon as you can make an income.

MORE >> How to withdraw RRSP without paying tax

The RRSP Contribution Limit

There is a limit to the amount you can contribute to the RRSP. The limit is either a maximum amount of 18% of your previous year’s income, whichever is lower.

There’s a limit to the amount you can contribute because the money you contribute will effectively reduce the tax you can pay.

There’s a limit to the total amount you can contribute to the RRSP to avoid people taking advantage of that loophole. However, this maximum amount changes yearly. 

Different RRSPS

An RRSP may be opened as an Individual RRSP, a Spousal RRSP (in your spouse’s name, but you make contributions and get a tax benefit), or a Group RRSP (in which contributions are made on behalf of a group) (a pooled plan offered by some employers).

Following your decision, you will be able to pick between four basic RRSP options:

1. Guaranteed RRSPs

This type offers you a guaranteed interest income thanks to the Guaranteed Investment Certificates. It is one of the safest options, albeit with little returns.

2. Mutual Fund RRSPs

Mutual funds are another available type of RRSP. It would be best to discuss this type with your financial institution and financial adviser. They usually have humongous fees.

3. Self-Directed RRSPs

Under this option, you will be responsible for your own investment choices. You do everything yourself and don’t need to pay anyone to manage things for you. That means you choose what to invest in, whether mutual funds, bonds, or the stock market.

It is an excellent option if you have the time and experience to follow up on the investments. If you don’t have the requisite time and expertise, it is best to get someone to do it for you.

4. Savings Account RRSPs

This is another safe option for your RRSP. The account will be structured to act as a savings account, although it is essentially an RRSP.


While both have their benefits, there are some instances where you should choose one over the other. Some people might wonder why they should go the RRSP route, which doesn’t allow you to withdraw money when you can select the free savings account TFSA path.

  • TFSAs are a better idea if you suddenly get rich by winning the lottery or getting an inheritance. That’s because they don’t have a specific limit to the money you can contribute. That’s unlike the RRSPs that have an annual limit.
  • TFSAs don’t put too many hindrances in the way of withdrawals before retirement. That means you can access the funds you have been saving up way before you retire. Now that’s not a brilliant idea if you want to save money that could help you with no earned income after retirement.
  • If you earn less money, it’s better to go the TFSA way because they have less tax. If you earn less than $50,000, it could be fiscally cheaper for you to use the TFSA than the RRSP.
  • If you think you’ll need your money for something immediate, like a car or a home, then the TFSAs are the best way to go. You won’t have issues withdrawing money way before you retire. That, however, doesn’t take away the fact that RRSPs are a sure way to be safe from retirement poverty.

MORE >> What is RRSP and TFSA?

RELATED >> 401k vs RRSP

Is There Something like Overcontributing to an RRSP?

Yes, there are. And there are penalties for this. We know that there is a specific limit to the money you can contribute to the RRSP. That’s because you gain access to an advantage with the money deducted for the RRSP. Therefore, there’s always a limit to the money you can contribute.

However, there will be consequences if you ignore this limit and over-contribute. Here is the kicker. The CRA will probably forgive you for making a contribution that’s over your limit by $2000. But if you go over this amount, you will get a notice from the CRA to make the money disappear.

If you don’t, they will give you a penalty of 1 percent of the amount you went over. However, thanks to the understanding nature of the CRA, you might be able to find an amicable solution to this mistake.

That’s why it is best to go through all the resolutions you need to follow should you make an overcontribution to avoid any penalties.

Can I Indefinitely Leave Funds in My RRSP?

You can’t leave your funds in the RRSP indefinitely. On the year you turn 71, you have to transfer those funds to a retirement income option or withdraw all of them. If you decide to withdraw the money, it will be subject to tax.

A registered retirement income fund (RRIF) is an excellent choice if you don’t want to withdraw the funds. You could also choose a qualified annuity. The taxes will still not be applied until you withdraw the funds for those plans.

FAQs: What is RRSP Canada?

What Is the Best Age to Open an RRSP?

You can open an RRSP account at any time. However, it’s best to do that as early as possible. How about you open it as soon as you can open an account with a financial institution? Most institutions will want you to be as close to the majority age as possible to open an RRSP.

What Are the Benefits of Investing in an RRSP?

The most significant benefit of an RRSP is the differing of the tax and the reduction of the tax-deductible on your income. They also are an ideal way to ensure you live comfortably in retirement.

When Can I Withdraw My Money?

You can only withdraw the money after you turn 71. Any withdrawals in between will have you face penalties. The only way to withdraw without penalties is to take advantage of the first-time homebuyer’s plan or the Lifelong Learning Plan.

How Long Can My RRSP Stay Open?

The RRSP stays open for 60 days after the end of the previous year. That means you have until March 1st to make your contributions.

At What Age Can I Withdraw from My GRSP?

You can withdraw from the GRSP once you turn 71. The deadline for this is usually December 31st, the calendar year you turned 71.

Is RRSP Same As 401 K?

While you can compare the 401(k) to a similar plan in the United States, such as an RRSP, it is not identical to them. Here are the distinctions: Employees in the United States would pay tax at 10% on early withdrawals, but employees in Canada do not incur early withdrawal penalties on their Canadian RRSP accounts.

Does RRSP Earn Interest?

A 1.10 percent interest rate is available on the RRSP savings account. There is no minimum deposit amount, but you must have at least $1,000 in your account if you wish to convert it to an RRSP term deposit account.

What Is RRSP? Final Thoughts

You get specific tax incentives and exemptions when making contributions by having an RRSP. When you reach the age of retirement, you can withdraw from their RRSP funds if it’s a retirement account. 

Any remaining funds from your RRSP will go to your named beneficiaries or estate at the end of your life. We hope we have shed enough light on RRSP and what they are. If you consider opening an RRSP, do it since it will be to your immense benefit.


Charity (Charee) Oisamoje is the founder of TheFinanceKey - TFK. She leads the editorial team, which is comprised of subject-matter experts.

Her professional competencies and expertise make her qualified on this topic. She is an expert at collecting details, verifying facts, and making complex subjects easy to understand.

Backed by Solid Credentials: ✔️MBA in Finance ✔️Canadian Investment Funds (IFIC) Graduate ✔️Masters Degree in International Business ✔️Chartered Professional Accountant (CPA) Candidate ✔️Chartered Insurance Professional (CIP) ✔️BSc Accounting

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