Check Out the Rules and Contribution Limits for an RRSP (2024)

RRSPs are designed to help yousave for retirement:

• The money you invest in your RRSP is tax-deductible(up to your personal deduction limit), and yourinvestment earnings grow on a tax-deferred basis.
• You can technically withdraw funds at any time.However, withdrawals are taxed as regular income inthe year they are made, (except when made under theHomebuyer’s Plan or Lifelong Learning Planprograms).
• When you retire, or no later than the end of theyear in which you turn 71, you can start drawingyour savings and supplement your retirement incomeby converting your RRSP to a Registered RetirementIncome Fund (RRIF) or other income option. And sinceyou will likely be in a lower tax bracket when youretire, you’ll likely pay less tax on thewithdrawals than you would today.

Most Canadians are eligible to open anRRSP. To qualify, you must:

• Be a Canadian resident with a Social InsuranceNumber (SIN)
• Have earned income and file a tax return in Canada
• Open and contribute to your plan no later thanDecember 31 of the year you turn 71.

Like Tax Free Saving Accounts (TFSA)and other types of registered accounts, an RRSP can holdmany types of investments². Forexample, when you open an RRSP at RBC, you can investin:

• GuaranteedInvestment Certificates (GICs)
• Mutualfunds, including RBC PortfolioSolutions
• Savings deposits
• Stocks and bonds (through RBCDirect Investing)
• Exchange-Traded Funds(ETFs) (through RBC Direct Investing and RBCInvestEase)

RRSPs and TFSAs differ a few ways—justkeep in mind you can have both^1Legal:

• RRSP contributions are tax-deductible (up to yourpersonal deduction limit) the year you make them,and your investments grow on a tax-deferred basis.Taxes are paid when you withdraw from your RRSP.While TFSA contributions are not tax-deductible,your investment earnings are never taxed, and youcan withdraw from your plan at any time (dependingon what you invested in) without ever paying tax.
• You have to have earned income to be eligible for anRRSP; TFSA eligibility is based on your age (youneed to be at least 18 or the age of majority inyour province) and residency.
• You can contribute to an RRSP until December 31 ofthe year you turn 71; in a TFSA, you can contributeas long as you want.

See how they stack up.

In general, there are three differenttypes of RRSPs:

• Individual RRSP: Themoney and tax advantages belong to the person whoopens it.
• Spousal RRSP: Onespouse or common-law partner (usually the higherearner) contributes to the other spouse’s plan. Thecontributing spouse will have the tax advantage butthe funds in the RRSP (no matter who contributes)belong to the receiving spouse.
• Group RRSP (GRSP): Acollection of individual RRSPs administered by anorganization for its employees, who contributedirectly from their payroll using pre-tax dollars.

You can open an individual or spousalRRSP with RBC. In addition, you can enjoy:

• An RRSPwith access to advice from an RBC advisor
• A self-directedRRSP you can trade in at RBC DirectInvesting
• An RRSP where the pros manage your investments foryou at RBCInvestEase

We also offer Group RRSPs for businesses.

The best way to know how much you cancontribute for the current year (also known as your RRSPdeduction limit) is to check your most recent Notice ofAssessment from the CRA .

As a guideline, however, you cancontribute (for the current year) the lower of:

• 18% of your earned income from the previous year
• $29,210, which is the maximum you can contribute in2022
• The remaining limit after any company-sponsoredpension plan contributions

Fortunately, RRSP contribution room iscumulative, which means any unused room from previousyears is added to your current contribution room—alsoknown as your carry-forward amount. The amount is shownon your Notice of Assessment.

If you plan to max out your RRSP, keepa close eye on your contribution room. When you gobeyond the maximum, it is considered anover-contribution.

• You can go up to $2,000 over the contribution limitwithout penalty. However, you have to withdraw thesecontributions before any new contributions can beapplied.
• The CRA will charge a 1% tax per month on excesscontributions that exceed your RRSP deduction limitby more than $2,000.

Taking money out of your RRSP may notbe a good idea because of the taxes you’ll have to pay(see below). However, there are two exceptions:

• If you are buying or building your first home, theHome Buyers’ Planlets you withdraw up to $35,000. You have 15 yearsto pay back the amount you took out, starting thesecond year after you buy (or build) your home.
• With the Lifelong LearningPlan, you can borrow up to $10,000 a yearfrom your RRSP ($20,000 maximum over four years) togo back to school full-time. Again, there are rulesabout eligibility, and how and when you’ll need topay back this money.

RRSPs offer tax advantages that canhelp you stretch your retirement savings. Here’s a quicklook at how each of the following is taxed:

• Contributions: Youcan deduct RRSP contributions on your tax return (upto your deduction limit), which lowers your taxableincome in the year you make the contribution.
• Investment growth:Investment income and capital gains within an RRSPare not taxed until you take the money out, givingyour savings the chance to grow faster.
• Withdrawals: They’reconsidered taxable income and withholding taxes mayapply (we’ll share more about that below), unlessyou’re borrowing under the Home Buyers’ Plan orLifelong Learning Plan.

If you withdraw money from your RRSPearly, you will have to pay withholding taxes on thewithdrawal—as much as 30%:

• The financial institution where you hold your RRSPmust deduct the withholding tax and send it to thegovernment on your behalf.
• You’ll also have to include the withdrawal as incomeon your tax return at the end of the year, whichcould raise your tax bill.
• You will not be able to re-contribute the amount youwithdrew in the future.

You can transfer RRSPs betweenfinancial institutions at any time without paying taxeson them. You can also move some or all of your moneybetween eligible investments within your RRSP.