Retirement Savings

RRSP

A Registered Retirement Savings Plan (RRSP) is an investment account that is registered with the Canada Revenue Agency (CRA) and allows you to save money on a tax-deferred basis until you retire – a tax-efficient way to build your retirement savings. Contributions made to an RRSP are tax-deductible and directly reduce your taxable income while any growth on your assets in the account are tax sheltered until withdrawn.  The plan can hold a variety of investments including: GICs, mutual funds, stocks, bonds and ETFs. 

The Basics

To open an RRSP, you will need:

  • A Canadian Social Insurance Number
  • To have filed an income tax return the previous year and declared earned income
  • Canadian employment or business income or unused contribution room
  • To be a Canadian resident

Key terms

  • Annuitant: Registered owner of the RRSP.
  • "First 60 Days" contributions: Contributions made in the first 60 days (typically the first two months) of the year. These contributions may be applied against either the earned income of the previous year or the year in which they are made.
  • "Remainder of the Year" contributions: Contributions made between March and December. These amounts are used to reduce taxable income in the year in which the contribution was made.
  • Pension Adjustment (PA): The value of any pension benefits accruing from participation in a registered pension plan (RPP) or deferred profit-sharing plan (DPSP).
  • Unused contribution room: The contribution amount that was not used in prior tax years and is provided on the Notice of Assessment from the CRA.
  • Earned income: Includes full and part-time employment income, self-employment income, net rental income, CPP/QPP disability payments. Does not include investment income (interest, dividend income and capital gains), CPP/QPP pension payments, OAS regular pension payments, income from RRIFs and annuities. (Note: this is not an exhaustive list)

Key Facts

Contribution Deadline

  • February 29, 2020 – 11:59 PM (local time)
  • Contributions made during the first 60 days of 2019 can be applied against income earned in either the 2019 or 2020 taxation year

Contribution Limit

  • The lesser of $26,500 (for 2019) or 18% of earned income from your previous tax year, minus any pension adjustments, plus unused contribution room from previous years
  • To find your contribution limit:
    • See your previous year’s Notice of Assessment from the CRA
    • Access your information online using the My Account feature on the CRA website at www.canada.ca/en/revenue-agency
  • Over-contributions:
    • There is a $2,000 lifetime over-contribution limit
    • Penalty tax of 1% per month on the amount over the $2,000 limit may apply until withdrawn from the plan

Carry Forward

  • RRSP contribution room accumulated after 1990 can be carried forward indefinitely to subsequent years

Eligibility

  • You can contribute to an individual RRSP if you have employment or business income or unused contribution room, up until December 31 of the year you turn 71
  • You cannot contribute to an RRSP if you’re a non-resident or if your income consists solely of estate income, dividends, royalties or capital gains

Minimum Age

  • There is no minimum age for contributing to an RRSP

Maximum Age

  • If you’re turning 71, this would be the last year in which you may contribute to your RRSP. The RRSP must be converted to a Registered Retirement Income Fund (RRIF) or an annuity or collapsed by December 31
  • After age 71, if you continue to have earned income and unused contribution room, you can contribute to a spousal RRSP up until December 31 of the year your spouse or common-law partner turns 71

Spousal RRSP

  • Contributor receives a tax deduction, but their spouse or common law partner is the registered owner/annuitant of the plan
  • With a Spousal RRSP, couples can split income and reduce their combined tax rate. The spouse with the higher income makes the contribution and takes the immediate tax deduction. Then the money in the RRSP is taxed to the other spouse when it is withdrawn – often at a lower rate
  • All or a portion of RRSP contributions can be contributed to an RRSP in a spouse's name. For example, an investor with contribution room of $7,200 for this year can contribute $5,000 to their own RRSP and $2,200 to a spousal RRSP or the full $7,200 to the spousal RRSP
  • The spouse does not need to have earned income or their own contribution room
  • An annuitant can have a spousal plan and a non-spousal plan
  • Once a plan is designated as spousal, it can only be changed to a non-spousal plan upon death or marriage breakdown. Certain conditions must be met
  • Reduce Taxes Now
    • How contributing to an RRSP defers your taxes

      • RRSP contributions can defer and potentially lower the amount of income tax you pay.
      • Individuals can enjoy immediate tax savings because an RRSP allows you to deduct from your net income on your tax return the amount of the contributions made in the same tax year and/or the first 60 days of the following year.
      • Later, when you withdraw the money from a RRIF and pay income tax on it, you may be in a lower tax bracket than today.

      Example – $5,000 RRSP contribution made at different marginal tax rates

      The actual cost of the contribution is reduced because of lower taxes.

      Marginal tax rate1 32% 39% 46%
      RRSP contribution $5,000 $5,000 $5,000
      Reduced taxes $1,600 $1,950 $2,300
      Actual cost of contribution2 $3,400 $3,050 $2,700

      1Source: Canada Revenue Agency; this is a hypothetical example to be used for illustrative purposes only.

      2Excludes taxes to be paid upon withdrawing the money from the RRSP (e.g. RRIF).

  • RRSP Withdrawals
    • With the exception of the First-Time Home Buyers' Plan and the Lifelong Learning Plan, RRSP withdrawals are subject to withholding taxes.

      Withholding tax

      The withholding tax rate that is applied depends on the amount requested to be withdrawn and whether or not you reside in Quebec

      Non-Quebec Residents

      Quebec Residents

      Gross Amount

      Federal Tax

      Gross Amount

      Federal Tax

      Quebec Provincial Tax*

      $5,000 or less

      10%

      $5,000 or less

      5%

      Additional 15%

      $5,001 - $15,000

      20%

      $5,001 - $15,000

      10%

      Additional 15%

      $15,001 or more

      30%

      $15,001 or more

      15%

      Additional 15%

      *The additional 15% provincial withholding tax for Quebec residents applies only to lump-sum withdrawals.

      Home Buyers’ Plan

      • Borrow from your RRSP to buy a qualifying first home or a home for a related person with a disability
      • Withdraw up to $35,000 – it's important to note that, if you're doing multiple withdrawals, the money needs to be withdrawn within the same calendar year
      • Eligible withdrawals are not added to your income and your RRSP issuer will not withhold tax on the amounts withdrawn
      • These withdrawals must be paid back within 15 years or add the proportionate annual repayment amount to your income

      Lifelong Learning Plan

      • Use your RRSP to finance full-time training or education for you and/or your spouse or common-law partner
      • Withdraw up to $10,000 in a calendar year up to a $20,000 maximum per person
      • Eligible withdrawals are not added to your income and your RRSP issuer will not withhold tax on the amounts withdrawn
      • You must repay these withdrawals within 10 years or add the proportionate annual repayment amount to your income

      Spousal RRSPs

      • For withdrawals tax form T4RSP is issued to the annuitant, but also contains the contributing spouse's name and SIN
      • If a contribution to any spousal plan is made in the year of withdrawal, or in the two previous years, the contributor must include in their income the lesser of the amount withdrawn, or whatever they contributed for those years
      • If the annuitant has both a spousal plan and a non-spousal plan, certain withdrawals may be subject to attribution rules. If the attribution rule applies, CRA Form T2205 should be completed and attached to both tax returns

      Death of a registered plan holder††

      • The fair market value (FMV) of investments held in an RRSP at the time of an RRSP annuitant's death is generally included in the income of the deceased for the year of death
      • A subsequent increase in the value of the RRSP investments is generally included in the income of the beneficiaries of the RRSP upon distribution
      • Exception – a "qualifying survivor" such as a spouse or common-law partner is the sole beneficiary of the RRSP. If the following two conditions are met, the deceased annuitant is not considered to have received the FMV of the RRSP at the time of death:
        • The spouse or common-law partner is named in the RRSP contract as the sole beneficiary of the RRSP; and
        • By December 31 of the year following the year of death, all the RRSP property is directly transferred to an RRSP or a RRIF under which the spouse or common-law partner is the annuitant (or to an issuer to buy an eligible annuity for the spouse or common law partner).

      † If a taxpayer buys the qualifying home with a spouse or common-law partner, or with other individuals, each of the buyers can withdraw up to $35,000, if eligible.

      †† Please note: Investors should seek professional advice on estate planning. The information on this website is by no means exhaustive or to be used instead of professional tax advice.

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