Registered Retirement Savings Plans (RRSPs) have been available to Canadians for almost seven decades, and for many people, they are the backbone of their retirement savings strategy.
RRSPs offer investors significant advantages:
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- Tax deductions on contributions
- Tax-deferred growth
- Tax-free rollover to surviving spouse when named beneficiary
- Pay out to named beneficiary without incurring probate fees
- Several different types of RRSPs to choose from
- Can be used to fund home purchases
- Can be used to fund education
- Can be used to help disabled family members
- Unused contribution amounts may be carried forward indefinitely
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The annual contribution deadline is 60 days after December 31 of the previous year.
Your annual contribution limit is 18% of the previous year’s earned income to a maximum of $31,560 in 2024; $32,490 in 2025. When calculating your RRSP contribution limit, consider any pension adjustments and reversals. Check with Canda Revenue Agency (CRA) to see their calculation of your RRSP room. See your Notice of Assessment (NOA) that CRA sends you, or go to CRA’s website and view My Account.
Your Registered Retirement Savings Plan matures on December 31 of the year you turn 71. At this point your RRSP must be collapsed and you must choose one or more of the following options:
- Withdraw the funds and include this amount in your annual income
- Transfer the funds to a Registered Retirement Income Fund (RRIF)
- Use the funds to buy an annuity
Your RRSP tax bill on death could potentially be the biggest tax bill you’ll ever pay. The full value of your RRSP will be included in income in the year of death and taxed at what may be the highest marginal rate to which you’ve ever been subject. Sometimes it makes sense to withdraw more from your RRSP (or RRIF) than you actually need. A drawdown strategy should be included in your Tax, Retirement, and Estate Plan.
