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Everything You Need To Know About RRSPs

Everything You Need To Know About RRSPs

Saving for your retirement isn’t often something that people think about when they are just starting out as an adult. It might seem like you just started working, but the reality is that retirement is no longer a hazy concept far off in the future. Thinking about saving for retirement can seem like a daunting task, but there are lots of great plans available, such as RRSPs, that can help you streamline your savings and get you on the right path when it comes to saving for your future!

Registered Retirement Saving Plans (or RRSPs) are retirement accounts that were introduced by the government in 1957 to help Canadians save for retirement. In this article, we’ve broken down everything you need to know about what an RRSP is and how it can help you save for your future.

Senior couple analyzing retirement savings

What Is an RRSP & How Does It Work?

As mentioned above, RRSPs are retirement savings accounts available to employees in Canada. Any money that is placed into an RRSP grows tax-free until it is withdrawn. The growth of RRSPs are determined by the amount within the account itself. The more money you add to your RRSP, the more money you will accrue over time through interest.

There are several different types of RRSPs available, including:

  • Individual RRSP – the account is held and contributed to by a single person
  • Spousal RRSP – provides benefits for a single spouse and has tax benefits for both spouses.
  • Group RRSP – set up by an employer for employees and is funded by payroll deductions. In some cases, companies will match a portion of contributions made by their employees.
  • Pooled RRSP – created for small business employees and employers

RRSPs are what is called tax-deferred. This means that any money you contribute will be exempt from CRA taxes the year you made the deposit and will only be taxed down the line when you withdraw the money.

Senior couple meeting with financial advisor

The Benefits of an RRSP

There are several great benefits to setting up and contributing to an RRSP. Two of the most prominent benefits are the Home Buyers Plan (HBP) and the Lifelong Learning Plan (LLP). With the HBP, you can withdraw up to $35,000 tax-free towards a down payment on your first qualifying home. It’s important to remember that you will have to pay this money back with zero interest over a period of time, but if you contribute regularly, this can be a great way to help you get into your first home.

If you have plans to go back to school but are intimidated by tuition costs, the LLP gives you the ability to withdraw $10,000 from your RRPS per year for two years to help cover the cost of your education. Similar to the HBP, this money will have to be repaid, but it can be a great way to get you back into the classroom to further your education.

Senior couple planning their retirement

RRSP Contributions

One thing that it is important to remember about RRSPs is that they aren’t bottomless holes where you can dump all of your money. They do have set contribution limits each year that typically works out to be the lesser of either:

  • 18% of your earned income for the previous tax year
  • The maximum contribution amount set by the CRA for the current tax year

If you can maximize your contributions each year, it can be a great way to optimize your tax savings while still saving towards your retirement. If you don’t use your full contribution amount in a single year, the great news is that the unused contribution amount can be carried forward.

There are lots of different ways that you can take advantage of an RRSP, whether it be simply saving for your retirement or leveraging them to help you get into your first home or go back to school.



Are you ready to start saving for your future? We can help! Contact us today to speak with one of our advisors to help you get set up with an RRSP today.