Registered Retirement-Savings Plan

Registered Retirement Savings Plan (RRSP)

Canadian taxpayers each year can contribute up to 18% of the previous year’s earned income plus any unused contributions from previous years to a Registered Retirement Savings Plan – up to the yearly maximum contribution limit. Contributions are tax deductible, and earnings grow tax-free inside the plan; however, withdrawals are taxed. (The exceptions: withdrawals to buy a first home or to help pay for your or your spouse’s education are not taxed; in both cases, you pay the money back over time.)

Since withdrawals are typically made during retirement and when participants are earning less money, it is likely that lower tax brackets will apply, resulting in less tax liability. Like TFSAs, RRSPs can hold a variety of assets, including cash, GICs , mutual funds, stocks and foreign currency.

Because RRSPs are tax-deferred savings vehicles, these plans are ideal for taxpayers who expect to have a higher tax rate when the money is put into the plan versus when they will take money out of the plan.