What is an RRSP (Registered Retirement Savings Plan) & How Does It Work? (2024)

FAQs

What is an RRSP (Registered Retirement Savings Plan) & How Does It Work? ›

An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan.

A Registered Retirement Savings Plan (RRSP) is a savings plan, registered with the Canadian federal government that you can contribute to for retirement purposes. When you contribute money to a RRSP, your funds are "tax-advantaged", meaning that they're exempt from being taxed in the year you make the contribution.

401(k)s and Registered Retirement Savings Plans (RRSPs). have key similarities and differences, but both help citizens save money and allow it to grow tax-free. RRSPs are more portable than 401(k)s because they can be opened by a private citizen; 401(k)s are only available via employers.

To qualify, you must: Be a Canadian resident with a Social Insurance Number (SIN) Have earned income and file a tax return in Canada. Open and contribute to your plan no later than December 31 of the year you turn 71.

You can make a withdrawal from your RRSP any time¹ as long as your funds are not in a locked-in plan.

According to Ratehub, the average 65-plus-year-old Canadian has $129,000 saved in their RRSP. The figure rises to about $160,000 if you include the Tax-Free Savings Account (TFSA). In total, the average retiree has $319,000 saved. A note on who Ratehub's survey sampled.

RRSPs are not allowed to own certain "non-qualifying" or "prohibited" investments. For example, cryptocurrencies cannot be held in a RRSP directly, although it is possible to hold them in a RRSP indirectly through an exchange traded fund or similar securities. The RRSP itself is exempt from income tax.

If you have an RRSP, the money in it is invested. This means that if the stock market or real estate markets drop, the value of the RRSP may also lose value. However, this may only be temporary; the stock market is cyclical, meaning it will go through both highs and lows.

Deposits held in a Registered Retirement Savings Plan (RRSP) are protected separately from the eligible deposits held in other insured categories, such as those held in individual names.

What happens to my RRSP if I move to the US? ›

Canadian citizens who live and work in the United States may contribute to an RRSP as long as they keep within the contribution threshold. Canadians may keep their RRSP intact when they move to the United States and let the income grow tax-deferred for Canadian tax purposes.

RRSPs can work well if you contribute while you're in a high tax bracket and withdraw when in a lower tax bracket. You can generate a higher net rate of return with an RRSP when the effective tax rate at the time of withdrawal is lower than the effective tax rate at the time of contribution.

An RRSP deduction limit is the maximum amount of money you can contribute to your RRSP and claim as a tax deduction on your income tax return. More specifically, it's the lesser of 18% of your income from the previous year or the annual limit set by the CRA (up to a maximum of $30,780 for tax year 2023).

By the end of the year you turn age 71, you must convert your RRSP to income options or withdraw all your RRSP funds. 1. Withdraw all your RRSP funds at maturity. The entire amount will be subject to withholding tax.

An RRSP is a great retirement savings vehicle for dual citizens, expats and Canadians. One should not transfer an IRA to an RRSP. It's important to avoid investing in Canadian mutual funds and seek out a portfolio manager who can offer individual investments.

Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.

At any age up to the end of the year you turn 71, you can choose one of the following options for your RRSPs: You can transfer your RRSP funds to a registered retirement income fund (RRIF). Starting in the year after the year you establish a RRIF, you have to be paid a yearly minimum amount.

As long as your RRSP isn't a locked-in plan, you can take money out of your RRSP any time. However, any amount you withdraw will be included as income for tax purposes. You'll also pay withholding tax on the amount you withdraw (based on the amount of the withdrawal).