Registered Retirement Savings Plan (RRSP)
What is an RRSP?
An RRSP (Registered Retirement Savings Plan) in an investment account that is registered with the Canadian Federal Government. An RRSP, or simply, RSP, helps you save for retirement by growing your money and sheltering it from taxes. Each dollar you contribute to your RRSP (up to a defined maximum) can be deducted from that year’s income, potentially reducing the amount of tax you pay.
The investment income you earn within your RRSP grows on a tax-deferred basis, so unlike non-registered investments, you don’t pay taxes on your retirement savings until you withdraw them.
What else can I use my RRSP for?
In addition to saving for retirement, there are a couple of other tax-efficient ways to use your RRSP. The Home Buyers' Plan lets you borrow up to $35,000 from your RRSP to put toward your first home purchase. Additionally, the Lifelong Learning Plan (LLP) lets you to withdraw up to $10,000 per year to finance education costs.
Benefits of an RRSP
Tax deductions
Contributions made to your RRSP are tax-deductible and can reduce the amount of tax you pay.
Tax deferred savings
You don’t pay tax on any interest, dividends, or capital gains that your investments earn inside your RRSP.
Unused contributions
You’re allowed to carry forward any unused contributions from previous years, which can help as your income increases.
A variety of investment options
Build your RRSP using a variety of investment and savings options – including GICs, mutual funds, and more.
Spousal RRSP income splitting
If one spouse earns more income than the other, the higher earner can reduce taxes by contributing to a spousal RRSP.
Government programs
The Home Buyers Plan and Lifelong Learning plan let you borrow funds from your RRSP without immediate tax implications.
Featured RRSP investing options to grow your savings
Already a Meridian Member? Simply sign in to open an RRSP savings account or GIC
Types of saving and investing options for your RRSP
The RRSP contribution limit is $29,210, or 18% of the income reported on your 2022 tax return - whichever is less. In 2023 the limit increased to $30,780 for the 2022 taxation year. If you have contribution room carried over from previous years, you can also use that. To find your current contribution limit, check your last Notice of Assessment from the CRA or log in to your account on the CRA website.
It's often easier to make smaller, regular contributions than it is to come up with a larger lump sum. This is easy to do with a pre-authorized contribution plan (PAC). A PAC automatically withdraws as little as $25 from one of your other Meridian accounts and adds it to your RRSP. In the end though, you can contribute any way you want – just keep an eye on the contribution limit.
If you are a first time home buyer, you can borrow up to $35,000 from your RRSP to help pay for your new home as part of the federal Home Buyers' Plan. Your spouse or partner can do the same, which would give you a total of $70,000. You don’t have to pay tax on this withdrawal, but you do need to pay it back within 15 years.
If you have separated, divorced, or ended a common-law partnership, you can still take advantage of the Home Buyers' Plan, even if you have purchased a home before. You just need to meet these conditions:
-
The separation had to take place within the previous four years, and you must be living apart for a minimum of 90 days.
-
You cannot be living with a new spouse or common-law partner when you withdraw under the Home Buyers’ Plan.
-
If you own a primary home at time of withdrawal, you must sell this principal residence no later than two years after the end of the year in which you make the withdrawal.
-
If you own a home jointly with your ex-spouse, you can use the HBP to buy out your spouse (in this case you don’t need to sell the principal residence, and the existing rule that individuals may not acquire the home more than 30 days before making the withdrawal will also be waived).
-
HBP balance must be $0 at time of withdrawal.
When you withdraw funds from your RRSP before retirement you pay a withholding tax on them (the amount will depend on where you live) and withdrawn funds also count as income, so they affect the income tax you pay as well. The two exceptions to this are withdrawals as part of the Home Buyers' Plan and Lifelong Learning Plan.
When you retire, you can convert the money in your RRSP into income by transferring it to a RRIF, purchasing an annuity, or cashing in your RRSP. You must withdraw all funds from your RRSP by the end of the year you turn 71.
If you exceed your maximum contribution for the year by $2,000 or less there’s no penalty but you don’t get a tax break on the excess amount. If you exceed your contribution limit by more than $2,000 you have to pay a penalty to the CRA of 1% per month on the excess amount for as long as it’s in your account.
With a spousal RRSP, one spouse (or common-law partner) is the owner of the account and one person is the contributor to the account. This is a great way to split income for tax purposes. For example, if you earn more than your spouse, you can split your RRSP contribution between your personal RRSP and a spousal RRSP. You still get the tax deduction, and you also help to grow your spouse’s retirement savings.
