RRSPs at a Glance

By: Sound Choices • February 8, 2021 • Personal Finance

A Registered Retirement Savings Plan (RRSP) is a plan that allows you to save money on a tax-deferred basis until you retire. Contributing every year can be a tax-efficient way to build your retirement savings.

What are the tax advantages?

RRSPs have various tax advantages compared to investing outside of a registered account:

  • Within an RRSP, you do not have to pay tax on any income or growth that you earn.
  • You only pay tax when you withdraw funds from your RRSP, which is hopefully when you are retired and potentially in a lower tax bracket.
  • You also get immediate tax savings, because you can deduct the amount of your RRSP contributions from your income on your tax return.

Viewed another way, the actual cost of your contribution is reduced because of lower taxes. The table below shows the impact a $5,000 RRSP contribution would have at different marginal tax rates.

Hypothetical marginal tax rate*




RRSP contribution




Reduced taxes




Actual cost of contribution




* This is a hypothetical example to be used for illustrative purposes only. For current Canadian income tax rates for individuals, visit https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html.

Who can invest in an RRSP?

Anyone who has earned income in the previous year and filed a Canadian tax return can contribute to an RRSP until December 31 of the year they turn 71.

How do contributions work?

The total amount you can contribute is:

  • Determined by the Canada Revenue Agency (CRA) each year
  • A percentage of earnings, minus any pension adjustments, plus unused contribution room from previous years.

Your pension adjustment amount is the value of any pension benefits you get from a registered plan or deferred profit-sharing plan. Your unused contribution room is the amount that wasn’t used in prior tax years, as determined by the CRA.

The maximum contribution amount may change, so check the Notice of Assessment you received from the CRA after filing your taxes. It will show your current RRSP contribution limit plus any unused room and pension adjustments. You can also visit the CRA website.

Be careful not to over-contribute. There’s a $2,000 lifetime over-contribution limit. Beyond that, you’ll pay a penalty tax of 1% per month on any over-contributions until you withdraw them from the plan.

You can make contributions to your RRSP throughout the year. Contributions made in the first two months of the year may be applied against either the earned income of the previous year or the current year. Contributions made between March and December are used to reduce taxable income in the year in which the contribution was made.

Why start now?

When you turn 65, you’ll receive modest pension benefits from the government, but for many Canadians, it’s not enough. According to Service Canada, the average combined Canada Pension Plan and Old Age Security benefit was just over $1,300 per person per month as of October 2020.**

If that doesn’t sound like enough to cover your post-retirement needs, consider opening an RRSP and contributing regularly. Speak to a financial advisor to find out how to get started.

To learn more about the RRSP options available to you, visit AGF.com/RRSP.

**Sources: https://www.canada.ca/en/services/benefits/publicpensions/cpp/payment-amounts.html,

The commentaries contained herein are provided as a general source of information and should not be considered personal investment or tax advice. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained here. 

The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances. 

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