Registered Retirement Savings Plans

Registered Retirement Savings Plans (RRSPs) are an excellent method to save for retirement while also reducing your taxes, so it’s no surprise that millions of Canadians have one. We love RRSPs, but we know that managing them may be challenging.

How does it work?Registered Retirement Savings Plans RRSPs


You can contribute to your RRSP every year to save for retirement while reducing your tax liability. RRSPs aren’t tax-free but they are tax-deferred. This means that you will not have to pay taxes on the money you put into your RRSP until you withdraw it, which is normally after you retire.


How do I set up an RRSP?


An RRSP can be created through a variety of financial institutions, including your bank, credit union, trust, insurance company, or financial adviser. The issuer (the person or institution with whom you formed the RRSP) is responsible for registering the plan, receiving contributions, and trading securities (if applicable) held within the plan on your behalf.


The first-60-days rule.


RRSPs are one of the few deductions that aren’t bound to the calendar year, unlike other deductions that you take throughout the tax year. In terms of taxes, each tax year has two contribution periods that you can apply:


  • Between March 2 and December 31 of the current tax year; or
  • Between January 1 and March 1 of the current calendar year.


This is called the first-60-days rule.


For example, let’s say you’re filing your 2021 tax return. You need to specify how much you contributed to your (or your spouse’s or common-law partner’s) RRSP between March 2 and December 31, 2021 as well as the amount you contributed between January 1 and March 1, 2022.


What’s an RRSP deduction limit?

The maximum amount of RRSP contributions you can deduct on your tax return is known as the RRSP deduction limit. You can reduce your tax liability by deducting your RRSP contributions (up to your annual deduction limit).


You can find your RRSP deduction limit:

  • At the bottom of your latest notice of assessment (NOA) or reassessment;
  • By logging in to your CRA My Account (if you’re registered);
  • By calling the RRSP Tax Information Phone Service (TIPS) hotline at 1-800-267-6999; or
  • On your T1028: Your RRSP Information (in some cases, the CRA will send this form to you if your RRSP deduction limit has changed since you filed your return).


You can choose how much of your yearly contributions to deduct on your tax return. If you do not deduct all of your contributions this year, you can carry the remainder forward for future use. This allows you to optimize your tax savings across a number of years. 


What’s an RRSP contribution receipt?


To claim the amounts on your taxes, you’ll need the information on your RRSP contribution receipt(s). Your RRSP issuer (for example, your bank) will send you a receipt detailing how much you or your spouse contributed to the RRSP between March 2 and December 31. If you made RRSP contributions during the first 60 days of the year, you will receive a separate RRSP contribution receipt for that time period.


If you haven’t received a receipt for your RRSP contributions, contact your RRSP issuer to obtain one.


Can I contribute to my spouse’s RRSP?


Absolutely! Contributing to your spouse’s RRSP reduces your RRSP deduction limit, but you receive credit for the contributions on your tax return.


If your spouse is in a lower tax bracket than you, you may choose to contribute to their RRSP so that when they take your contribution from their RRSP, they pay less tax on it. Keep in mind that your spouse must wait at least three years before taking your contribution, or the amount will be taxed based on your income (not theirs). For example, if you contribute to your spouse’s RRSP in 2021, they won’t be able to withdraw the funds until 2024. Continue reading to learn more about how RRSP withdrawals are taxed.


What do I do with unused RRSP contributions?


If you made RRSP contributions during the year, declared them on your tax return for that year, but didn’t deduct the whole amount, you will have unused RRSP contributions. You can deduct your unused RRSP contributions from taxes in a succeeding year.


You can find your unused RRSP contribution amount on your:

  • Notice of assessment (NOA) or notice of reassessment;
  • CRA My Account; or
  • T1028 form (if your RRSP deduction limit has changed since you filed your last return).


Any unused funds (together with your RRSP contributions and deduction limit) will automatically download into your return if you’re using the CRA’s AFR service to download information into your return from their website.


What if I forgot to report my RRSP contributions last year?


In order to deduct these contributions from your income, you must change your return for the previous year if you made RRSP contributions but failed to report them.


What if I went over my RRSP deduction limit?


A tax of 1% per month will be due on the amount you overcontributed if you contribute more than $2,000 over your deduction limit. The T1-OVP 2020 Individual Tax Return for RRSP, PRPP and SPP Excess Contributions form must be submitted to the CRA within 90 days of the end of the tax year. This form will be used to determine your penalty tax.


By removing the excess contribution from your bank account and transferring it as quickly as possible to your RRSP, you can reduce the penalty tax.


You must immediately file a T3012A form with the CRA to request certification of the over-contribution amount if you want your bank to return your excess contribution without charging the regular tax on RRSP withdrawals. Making a regular withdrawal from your RRSP is an option if you don’t want to wait for a T3012A form to be approved by the CRA (which may be necessary if the penalty tax is accruing) and don’t mind having tax withheld.


When you submit your return, you must include the amount you received from your RRSP as income; but, you can claim an offset deduction to ensure that your excess contribution doesn’t result in a higher taxable income for the year. For instance, if your bank returned $10,000 of an over-contribution to your RRSP and the rest of your taxable income for this year is $50,000, your final taxable income without an offsetting deduction will be $60,000. However, if you claim an offset deduction for your over-contribution, your taxable income will be reduced to $50,000.


You can claim an offsetting deduction by submitting the T746 form when you file, as long as:

  • You reasonably expected to claim a deduction for the contribution, either in the year you made the contribution or the year before; and
  • You didn’t make the contribution with the plan to withdraw it later and deduct the offset amount.


Can I withdraw from my RRSP before I retire?


Definitely! Remember that the money you withdraw from your RRSP is considered income, so you must add it to the other income you earned and disclosed on your return for the tax year. This implies that you can fall into a different tax category and end up paying more in taxes this year than you did last year.


Additionally, if you take an early withdrawal from your RRSP, you will forfeit the contribution room that you initially utilized to deposit that sum (meaning the maximum amount you can contribute to your RRSP will permanently be lower by the amount you withdrew).


How are my withdrawals taxed?


When you take money out of your RRSP, some of it is taxed at the source, which means that some of the money goes to the CRA before it reaches you. The amount you withdrew determines how much tax you’ll owe:


  • 10% (5% if you’re a Québec resident) if you withdraw up to $5,000;
  • 20% (10% if you’re a Québec resident) if you withdraw between $5,001 and $15,000; and
  • 30% (15% if you’re a Québec resident) if you withdraw $15,001 or more.

In addition to the federal rates mentioned above, a further 15% will be transferred to Revenu Québec if you are a resident of Quebec. For illustration purposes, your RRSP withdrawal is less than $5,000. 20% of the amount you withdraw will be deducted as tax, of which 15% will go to Revenu Québec and 5% to the CRA.


Can I withdraw from my RRSP without tax penalties?


You can take money out of your RRSP tax-free through the Lifelong Learning Plan (LLP) and Home Buyers Plan (HBP), as long as you repay it within the specified time frame.


If this seems complicated or you have a question about your RRSP, reach out to us. Our IDM tax experts will guide you along the way.