What is an RRSP?
A registered retirement savings plan allows you save for retirement but it can also be used to finance the purchase of a first property (HBP) or to go back to school (LLP). An RRSP offers a double tax advantage. First, the money invested is tax deductible. You can therefore deduct your contributions from your annual income and pay less in taxes. Second, as long as you don’t make any withdrawals, the money saved in your RRSP is non-taxable.
How much can I contribute to my RRSP?
For 2023, you can contribute up to 18% of your annual income up to a maximum of $30,780. Your unused contribution room can be carried over year to year, which means that you can invest more than 18% of your annual income if you have not maximized your contributions in previous years.
How can you maximize your RRSP contributions?
Because RRSPs have many tax advantages, an RRSP loan may be a good strategy for maximizing your contributions.
What is the RRSP contribution deadline?
For the 2023 tax year, you have until March 1, 2024, to contribute and enjoy tax deductions. You can still contribute to your RRSP after this date; however, your contributions will be entered on your income tax return for the next year.
Four types of investment for your RRSP
Choosing iA for your RRSP is choosing the company that has been first in net segregated fund sales in Canada since 2016. Our funds are managed by top portfolio managers and follow the most innovative market trends. Different investment options are available based on your investor profile and your risk tolerance.
Segregated funds are like mutual funds but offer many advantages, including guarantees that protect your investments against market downturns.
Guaranteed interest funds
Guaranteed interest funds offer a fixed interest rate that is guaranteed for the life of the investment. They guarantee 100% of your capital at maturity.
Frequently Asked Questions
Who can open an RRSP?
To be eligible for an RRSP, you must:
- - Be aged 71 years or under on December 31 of the current year.
- - Earn an income and produce a tax return in Canada.
Can I have an RRSP if I am not a Canadian citizen?
Yes. You must earn an income in Canada to be eligible and have filed at least one tax return in the past. Foreign workers and students can also contribute to an RRSP before obtaining their permanent resident status.
At what age can I start contributing to an RRSP?
There is no minimum age for having an RRSP and you can contribute to it from the moment you earn an eligible income. However, you must have reached the age of 18 years in the last year to contribute more than $2,000.
Until what age can I contribute to an RRSP? When can I withdraw my RRSP?
Why use the RRSP to save taxes?
The contributions to your RRSP reduce your taxable income during a fiscal year, thereby reducing your tax payable at the same time. The RRSP also allows you to grow your investments sheltered from tax to accumulate for your retirement.
What is the maximum amount that I can contribute to my RRSP?
You can deposit up to 18% of your annual earned income in your RRSP, up to the maximum allowed for the current year. This maximum is $30,780 for 2023.
Your unused contribution room accumulates from year to year. You can therefore invest more than the maximum allowed if you have not maximized your previous years contributions.
You will find your personal contribution ceiling on the annual tax assessment sent to you by the Canada Revenue Agency (CRA) after you have completed your tax return.
Are there penalties if I exceed the contribution limit for my RRSP?
Yes. A tax of 1% per month applies to contributions which exceed your eligible contribution room by $2,000.
Can I have an RRSP if I already have a pension fund with my work?
Yes. However, you must consider the amounts paid by you and your employer in your retirement plan, since these amounts reduce your annual contribution room.
To determine your eligible RRSP contributions, a pension adjustment (PA) is calculated. It generally represents the amount that your employer and you paid to the pension plan and must be deducted from your contribution room. You will find this information on your notice of assessment from the Canada Revenue Agency (CRA).
Why contribute to my spouse’s RRSP?
Contributions to a spousal RRSP can be beneficial in certain contexts. This is the case when you and your spouse have different tax brackets. Contributions to the RRSP of the spouse with the higher salary allow for a higher deduction for the current year. At retirement, income splitting will reduce the combined tax burden.
In all cases, it is best to talk to your advisor before making contributions to a spousal RRSP.
Can I use my RRSP to purchase a home?
Absolutely! In Canada, you can use the Home Buyers’ Plan (HBP) to borrow up to $35,000 from your RRSP to buy your first property, without increasing your annual income.
You must fulfil a few eligibility criteria to benefit from the plan. You will then have 15 years to reimburse the funds borrowed from your RRSP account or you must pay tax on the outstanding amount. This option is beneficial for new buyers.
Can I use my RRSP to finance a return to school?
Yes! In Canada, the Lifelong Learning Plan (LLP) allows you to borrow amounts from your RRSP to return to full-time studies. You can withdraw up to $10,000 per year, for a maximum total of $20,000. The LLP can also be used to finance your spouse’s studies.
You will have 10 years to reimburse the funds to your RRSP by paying an annual minimum of 10% of the amounts borrowed.
Can I withdraw funds from an RRSP before retirement?
Yes. If the funds are not contained in a locked-in plan, you can withdraw them at any time. However, the funds withdrawn are added to your taxable income during the year and you will be taxed according to your bracket at the time of withdrawal. It is therefore important to consider the tax consequences of an early withdrawal.
Can I contribute to an RRSP if I have left the country?
If you already have an RRSP account and you have left Canada, you can continue to contribute as long as you have unused contribution room. Afterward, you must earn an eligible Canadian income to continue to contribute.