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24.4.2 Registered Retirement Savings Plans

Learn about Registered Retirement Savings Plans (RRSPs) including the types, contributions, withdrawals, and tax implications.

Registered Retirement Savings Plans (RRSP)

A Registered Retirement Savings Plan (RRSP) allows individuals in Canada to defer tax payment on a portion of their income and allocate it towards their retirement savings. Annual contributions to the plan are tax-deductible up to allowable limits, and income earned in the plan accumulates tax-free as long as it remains within the RRSP. Any withdrawal from an RRSP is taxed as regular income in the year it is made.

Types of RRSPs

There are two main types of RRSPs: single vendor plans and self-directed plans.

Single Vendor Plans

Single vendor plans involve investing in one or more guaranteed investment certificates (GICs), segregated pooled funds, or mutual funds. These investments are held in trust under the plan by a specific issuer such as a bank, insurance company, credit union, or trust company. Investors do not make day-to-day investment decisions and may incur trustee fees in addition to costs related to purchasing the investments.

Self-Directed Plans

Self-directed plans allow investors to invest funds or contribute certain acceptable assets, such as securities, directly into the plan. These plans are typically administered for a fee by a Canadian financial services company, but the investors make most of the investment decisions. A broad range of securities can be held in these plans, subject to specific rules regarding allowable content.

Qualified and Non-Qualified RRSP Investments

Qualified RRSP investments include:

  • Money on deposit in a bank or similar institution
  • GICs
  • Government-guaranteed bonds
  • Shares and debt obligations of Canadian public companies
  • Shares of foreign public corporations listed on a prescribed stock exchange
  • Foreign government bonds with investment-grade ratings

Non-qualified RRSP investments include:

  • Shares and debt obligations of private corporations (unless certain prescribed conditions are met)
  • Real estate (other than real estate investment trust units, which are qualified investments)
  • Commodity and financial futures contracts
  • Property such as artwork, jewelry, rare manuscripts, and stamps

For more details on qualified and non-qualified RRSP investments, visit the CRA website.

Contributions to an RRSP

There is no limit to the number of RRSPs an individual may own. However, the total amount contributed annually is restricted. The maximum annual tax-deductible contribution is the lesser of:

  • 18% of the previous year’s earned income
  • The RRSP dollar limit for the year (indexed to inflation annually)

From this amount, deductions are made for the previous year’s Pension Adjustment (PA) and the current year’s Past Service Pension Adjustment (PSPA). Also, the taxpayer’s unused RRSP contribution room from prior years is added. For instance, in 2020, the RRSP contribution limit was $27,230.

Contributions must be made in the taxation year or within 60 days after the end of that year to be deductible for that year. Individuals can carry forward unused contribution room indefinitely.

Example Calculation

In 2019, Mario earned $70,000 with a PA of $5,400 on his T4 tax form and no unused RRSP contribution room or previous over-contributions. Mario’s maximum tax-deductible contribution for 2020 is calculated as follows:

  • The lesser of $12,600 (18% of $70,000) and $27,230 (2020 RRSP limit) is $12,600.
  • Subtracting the 2019 PA of $5,400: $12,600 - $5,400 = $7,200.

Thus, Mario can contribute up to $7,200 for the 2020 tax year.

Earned Income Eligible for RRSP Contributions

Earned income for RRSP contributions includes the total of the following amounts:

  • Total employment income (less any union or professional dues)
  • Net rental income and net income from self-employment
  • Royalties from published work or inventions, research grants
  • Some alimony or maintenance payments ordered by a court
  • Disability payments from CPP or QPP
  • Supplementary employment insurance benefits like parental leave top-ups


Over-contributions exceeding the $2,000 allowable may incur a 1% penalty per month on the excess. Withdrawals or contributions should be carefully calculated to avoid penalties.

Contribution In Kind

Contributing in kind involves transferring existing securities to an RRSP. This is deemed as a disposition, requiring the calculation of capital gains or losses based on the fair market value at the time of contribution. Any capital gain is taxable in the contribution year, but capital losses are deemed nil.


Shen purchased 100 shares of Grow Stock Inc. at $10 per share ($1,000 total), which grew to $20 per share ($2,000 total). If the shares are contributed to an RRSP, he must report the $1,000 capital gain, as the fair market value of the shares contributed is $2,000.

Withdrawals from an RRSP

Withdrawals are subject to graduated withholding tax and must be included as income in the withdrawal year. Withholding tax rates differ slightly for Quebec and other provinces.

Withholding Tax Table

Amount Withdrawn All Provinces (Except Quebec) Quebec (Combined Federal)
Up to $5,000 10% 20%
$5,001 - $15,000 20% 25%
Over $15,000 30% 30%

Spousal RRSPs

A spousal RRSP allows contributions to be made to a spouse’s plan. The contributing spouse’s contribution limit governs the amount. Withdrawals are taxable depending on the timing of contributions relative to the withdrawal.


Davide contributed $1,000 annually to his wife Elena’s spousal RRSP for six years. In year seven, with no new contributions, if Elena withdraws $6,800 in that year, Davide reports $2,000 (contributed in the last three years) as his income, and Elena reports $4,800 (older contributions and earnings) as her income.

Additional Contribution Types

Certain pension incomes can be transferred directly to an RRSP without affecting regular limits, such as lump-sum transfers from pension plans and specific retiring allowances.

Termination of an RRSP

RRSPs must be deregistered by age 71. Options include lump-sum withdrawal, purchasing life or fixed-term annuities, or transferring to a Registered Retirement Income Fund (RRIF). Upon the holder’s death, benefits may transfer to designated beneficiaries under specific conditions.

Pros and Cons of RRSPs


  • Tax-deductible contributions
  • Sheltered lump-sum transfers
  • Tax-deferred growth
  • Potential lower tax rates upon withdrawal
  • Spousal income splitting opportunities


  • Taxable as income, not capital gains
  • No dividend tax credit
  • Tax implications on death
  • Cannot be used as loan collateral

Key Takeaways

  • RRSPs provide a tax-advantaged way to save for retirement.
  • Choices between single vendor and self-directed plans depend on investment involvement preference.
  • Know the types of qualified and non-qualified investments.
  • Over-contributions may incur penalties, and careful planning is required for withdrawals.
  • RRSPs must be deregistered by age 71, with multiple options for proceeds.

Frequently Asked Questions (FAQs)

Q: What happens if I over-contribute to my RRSP? A: Over-contributions up to $2,000 are allowed without penalty. Beyond that, a penalty tax of 1% per month applies to the excess amount.

Q: Can I contribute securities to an RRSP instead of cash? A: Yes, this is called a contribution in kind. It involves valuing the securities at fair market value at the time of transfer, with any capital gains taxable at that time.

Q: What are the benefits of a spousal RRSP? A: Spousal RRSPs allow income splitting in retirement, potentially reducing overall taxes and maximizing pension tax credits.

Q: When must I deregister my RRSP? A: RRSPs must be deregistered in the calendar year the holder turns 71, with options to withdraw, purchase annuities, or transfer to an RRIF.

Q: Are RRSP withdrawals taxed the same across Canada? A: No, withholding tax rates differ, especially in Quebec, which has specific combined federal and provincial rates.


  • RRSP: Registered Retirement Savings Plan, a tax-advantaged investment account for retirement savings.
  • GIC: Guaranteed Investment Certificate, a Canadian investment that offers a guaranteed rate of return over a fixed period.
  • Withholding Tax: Income tax that is deducted at source from payments like withdrawals from an RRSP.
  • Capital Gain: Profit from the sale of an asset or investment, taxable when realized.
  • RRIF: Registered Retirement Income Fund, a retirement fund allowing withdrawals at the holder’s discretion subject to minimum annual withdrawals.

Glossary definitions end

Frequently Asked Questions end

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## What is the main advantage of contributing to an RRSP? - [ ] Immediate liquidity of funds - [x] Tax-deferred growth on investments - [ ] Guaranteed high returns - [ ] Eligibility for dividend tax credits > **Explanation:** Contributions to an RRSP allow for tax-deferred growth on investments until they are withdrawn, enabling the contributor to benefit from compounding returns on a tax-free basis. ## Which type of RRSP allows the holder to make their own investment decisions? - [ ] Single vendor plans - [x] Self-directed plans - [ ] Employer-sponsored plans - [ ] Pension plans > **Explanation:** Holders of self-directed RRSPs can make their own investment decisions within the rules set by the Canadian government. ## What is the penalty tax rate for RRSP over-contributions exceeding $2,000? - [x] 1% per month - [ ] 10% per month - [ ] 5% per year - [ ] 0.5% per month > **Explanation:** RRSP over-contributions exceeding $2,000 are subject to a penalty tax of 1% per month on the excess amount. ## Which of the following is a qualified RRSP investment? - [x] Shares of Canadian public companies - [ ] Private real estate investments - [ ] Cryptocurrency - [ ] Collectible items > **Explanation:** Shares of Canadian public companies are qualified investments for an RRSP, while private investments such as real estate, cryptocurrency, and collectibles are not. ## How are RRSP withdrawals taxed? - [ ] At a flat capital gains tax rate - [x] As regular income in the year of the withdrawal - [ ] They are not taxed if withdrawn after age 60 - [ ] Only the investment earnings are taxed > **Explanation:** RRSP withdrawals are taxed as regular income in the year they are withdrawn, irrespective of the investor's age at the time of withdrawal. ## What is the maximum annual RRSP contribution limit? - [ ] 18% of current year’s income - [x] The lesser of 18% of the previous year’s earned income or the dollar limit for the year - [ ] 25% of the previous year’s earned income - [ ] The greater of 18% of current year’s income or dollar limit for the year > **Explanation:** The maximum annual tax-deductible contribution is the lesser of 18% of the previous year’s earned income or the dollar limit for the year. ## What is one restriction on the use of RRSP assets? - [ ] They can be used as collateral for loans - [ ] They cannot earn interest - [x] They cannot be used as collateral for loans - [ ] They can only be invested in mutual funds > **Explanation:** RRSP assets cannot be used as collateral for loans, limiting the ability to leverage these funds for borrowing purposes. ## Which withdrawal scenario involves considering the contributor's income as taxable income when funds are withdrawn from a spousal RRSP? - [ ] Withdrawal made more than five years after contribution - [ ] Withdrawal made three years after the contribution - [x] Withdrawal made in the same year of the contribution or within two calendar years prior to the withdrawal year - [ ] Withdrawal made only after the contributor's retirement > **Explanation:** If a withdrawal from a spousal RRSP is made in the year of contribution or within the two calendar years preceding the withdrawal year, the amount is considered taxable income to the contributor. ## What is a spousal RRSP? - [x] An RRSP registered in the spouse's name where the contributing taxpayer claims the deduction - [ ] An RRSP that both spouses can contribute to equally - [ ] An RRSP that has no contribution limits - [ ] An RRSP jointly managed by both spouses > **Explanation:** A spousal RRSP is an account registered in the name of the spouse or common-law partner, but the contributing taxpayer claims the contribution deduction. ## What are the consequences of contributing securities already owned to an RRSP (contribution in kind)? - [ ] No tax consequences are applicable - [ ] Contributions in kind are not allowed - [ ] Only half of the capital gains need to be reported - [x] A capital gain must be reported for tax purposes at the time of contribution > **Explanation:** When contributing securities already owned to an RRSP, it is considered a deemed disposition, and any resulting capital gain must be reported for tax purposes at the time of the contribution.

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Tuesday, July 23, 2024