Your RRSP will likely represent a key source of your retirement income.  The savings that you accumulate in your RRSP over the years can be converted to an income source once you retire.  A thorough understanding of these rules and strategies, accompanied by effective management of your RRSP assets, may help you accumulate savings for your retirement.  


What is an RRSP?

An RRSP is a tax-sheltered investment vehicle that may help you save for retirement.  Contributions to an RRSP may be tax deductible.  This means that you can claim the contributions as a deduction on your income tax return and reduce your taxable income in the year you claim the deduction.  As well, income and capital gains earned in the plan compound on a tax-deferred basis and are taxable when you withdraw funds from the plan.

You may contribute to an RRSP up until the end of the year in which you turn age 71.  If you have a spouse, you can contribute to a spousal RRSP up until the end of the year in which your spouse turns age 71.  

You will need to wind up or mature your RRSP by December 31 of the year you turn 71.  The maturity options include:

1. Converting to a Registered Retirement Income Fund (RRIF)

2. Using the funds in your RRSP to purchase an eligible annuity

3. Withdrawing your RRSP funds (less withholding tax) in cash or in-kind

RRSP contributions made in the current tax year or in the first 60 days of the following tax year are generally tax deductible in the current tax year.  You do not have to claim the full amount of any RRSP contributions you make as a deduction in a particular year.  


RRSP Contribution Limit

Your annual contribution limit is based on your earned income from the previous tax year, your participation in a Registered Pension Plan (RPP) or a Deferred Profit Savings Plan (DPSP), as well as the prescribed contribution limit.

If you are part of a group RRSP, it is important to remember that group RRSP contributions count towards your regular RRSP contributions for the year.  If you are part of a group plan offered by your employer, be sure to take these contributions into account when determining how much you should contribute to an RRSP personally.

If you do not contribute your maximum available contribution limit to your RRSP, you can carry forward the unused portion and make the contribution in a future year.  This unused portion can be carried forward indefinitely.  


Withdrawals from an RRSP

Generally, you would want to make RRSP withdrawals when you need funds during retirement.  However, there may be occasions when a withdrawal is necessary.  It is possible to withdraw or deregister funds from your RRSP before age 71.  The amount withdrawn is taxable to you in the year of withdrawal.