A high-level overview of the Canadian Registered Retirement Savings Plan

Planning for your financial future in Canada often involves evaluating and understanding the various savings tools at your disposal. From the Tax-Free Savings Account (TFSA) to the First Home Savings Account (FHSA), there are many different options available for Canadians to choose from.

One of the longest standing savings plans out there is the Registered Retirement Savings Plan (RRSP), which was introduced by the federal government in 1957. This plan is among the most well-known savings vehicles in Canada, however, many people often have questions about how it works.

In this article, we’ll cover some of the basics of this plan, including how to set one up and what happens to the account after you retire.

4 common questions about Registered Retirement Savings Plans

1) What is a Registered Retirement Savings Plan (RRSP)?

A Registered Retirement Savings Plan (RRSP) is a plan that you can set up to put money aside for your retirement years, registered with the Canada Revenue Agency (CRA). You can open an RRSP through just about any financial institution, including:

• Banks
• Credit unions
• Brokerages
• Insurance companies
• Trusts

Depending on your circumstances and financial goals, you and/or your spouse or common-law partner can contribute to your RRSP. Some employers also offer the opportunity to opt into a group RRSP, which you may join through your organization.

From the Canada Revenue Agency:

“An RRSP is a retirement savings plan that you establish, that the CRA registers, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax.

Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.”

2) How much can you contribute to your RRSP?

Your earned income creates your RRSP contribution room. To locate your available contribution room, you can view it online by logging into your CRA My Account if you have one, or you can check your previous year’s notice of assessment.

It’s important to note that any contributions you may have made in the current year are not considered in the amount stated within your CRA My Account or on your notice of assessment. In addition, overcontributions to your RRSP could result in taxes and/or penalties.

As each person’s circumstance is unique, if you have any questions about your RRSP contribution room or deduction limit, or if you think you may have overcontributed to your account, we recommend that you consult with your accountant as soon as possible.

3) When is the RRSP contribution deadline?

The deadline to contribute to your RRSP for any given year is 60 days after December 31st. This typically means that you must contribute to your account by March 1st, but this deadline will move to the next business day if it lands on a holiday or weekend.

4) What happens to your RRSP when you retire?

When you turn 72 years old, your Registered Retirement Savings Plan account converts into a Registered Retirement Income Fund (RRIF). There will be a yearly minimum income amount that you must take out from your RRIF, which will be taxable. You will receive a Statement of Income from a Registered Retirement Income Fund (T4RIF) for this income.

If you make any withdrawals from your RRSP before you turn 72, that amount will also be taxable and you will receive a Statement of RRSP Income (T4RSP).

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By Carly Boyce

Carly Boyce, CPA, BBA, is one of Loren Nancke’s Senior Accountants. In her role at the firm, Carly works with the team to complete a wide range of accounting services.

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