If you’re saving for retirement, you want your money to grow steadily and reliably so you know you’ll have enough to live day-to-day and enjoy life when you have more time on your hands. Your contribution to an RRSP is tax-deductible, up to your deduction limit, so you save on taxes each year you contribute. An RRSP also helps you reach your financial goals for your retirement efficiently because you don’t pay tax every year on the growth of your investments. Instead, the money you would have paid in taxes continues to grow inside the plan. You do have to pay taxes on the amount of any withdrawal.
Catch up to your personal contribution limit. You can find your personal contribution limit on your most recent Notice of Assessment, or you can check the CRA site for more options. Consider contributing your tax refund, bonuses and other windfalls, or taking out an RRSP loan* that you pay back as soon as you receive the tax refund for your contribution.
* Borrowing to invest in an RRSP may not be appropriate for everyone. You will need the financial resources to meet your loan obligations in full. Talk to your advisor to find out more about the advantages and obligations of borrowing to invest.
You can contribute up to your deduction limit. In any given calendar year, your RRSP deduction limit is equal to 18% of your earned income for the previous year, up to the maximum RRSP limit, adjusted for amounts reported to you that reflect the value of the benefits provided by your employer’s pension plan, plus your unused RRSP deduction room left over from prior years. If you don’t make the full contribution, you can carry forward your contribution room.
When can you contribute to an RRSP?
You can contribute any time before the end of the year you turn 71, as long as you have contribution room. If you want to deduct your contribution from this year’s taxes, you must contribute before the RRSP deadline, which is 60 days after the end of the year, or by December 31stof the year you turn 71.
Can you contribute to your spouse’s RRSP?
You can use your contribution room to contribute to a spousal RRSP (an RRSP that is owned by your spouse but that you contribute to). Your spouse would be taxable on any withdrawals from a spousal RRSP provided you have not contributed to any spousal RRSP in the current or preceding two calendar years. This can be an effective income splitting strategy today and in retirement. However, if you have made a contribution to any spousal RRSP in the current or preceding two calendar years, the amount of the withdrawn (up to the amount of your contribution) will be included your income for that year.
When can you withdraw your money from an RRSP?
You can withdraw your money at any time, but in most cases you have to pay tax. Unless you’re using the Home Buyers’ Plan or Lifelong Learning Plan, it’s generally better to wait to make withdrawals until you retire.
How does the Home Buyers’ Plan work?
You can borrow up to $25,000 from your RRSP to buy a qualifying first home through the Home Buyers’ Plan. As long as you pay the money back on time, over a period of 15 years, you don’t have to pay tax on your Home Buyers’ Plan withdrawal.
How does the Lifelong Learning Plan work?
You can borrow up to $10,000 in a calendar year and up to $20,000 in total from your RRSP to pay for a qualifying educational program through the Lifelong Learning Plan. As long as you pay the money back on time, over a period of 10 years, you don’t have to pay tax on your Lifelong Learning Plan withdrawal.
How do you turn your RRSP into retirement income?