Understanding RRSPs
A Registered Retirement Savings Plan (RRSP) is a tax-sheltered trust designed to help you save for retirement. Contributions are tax-deductible, reducing your taxable income, and investments grow tax-deferred until withdrawal. You can hold various investments within an RRSP, including stocks, bonds, and mutual funds.
Key Features & Rules
- Contribution Limits: Annual limits are set by the Canada Revenue Agency (CRA), based on your earned income. For 2025, the limit is $32,490, rising to $33,810 in 2026.
- Deadlines: Contribute by March 2, 2026 (for the 2025 tax year). Missed contributions can be carried forward indefinitely.
- Excess Contributions: Over-contribute by up to $2,000 without penalty. Beyond this, a 1% monthly penalty applies.
- Withdrawal Rules: Withdrawals are taxed as income. The CRA requires lump-sum tax withholding on total withdrawals to prevent tax minimization schemes.
- Learn More: RRSP resource.
Why RRSPs Matter
- Tax Advantages: Lower your taxable income now and defer taxes on investment growth.
- Retirement Income: Convert your RRSP to a RRIF or annuity at maturity (by age 71) for a steady retirement income.
- Estate Planning: Designate beneficiaries to preserve assets and manage tax implications.
Common Maturity Options
- RRIF: Offers flexibility in withdrawals and tax-deferred growth.
- Annuity: Provides a guaranteed income stream but is inflexible.
- Cash Withdrawal: Possible but tax-inefficient due to withholding taxes.
- Learn More: RRSP maturity options
Maximize Your RRSP
- Contribute Early: Start early to benefit from tax-deferred compounding.
- Spousal RRSPs: If your spouse earns less, contribute to their RRSP to balance retirement income and reduce taxes.
- Avoid Over-Contributing: Stay within limits to prevent penalties.
- Seek Advice: During Financial Planning, we test various scenarios to ensure you are on track to meet your goals. Call us if you need to re-align your RRSP strategy with your financial goals.
Important Considerations
- Withdrawal Timing: Withdrawals before age 71 are possible but may incur tax penalties.
- CRA Compliance: Avoid structuring withdrawals to minimize taxes—the CRA mandates lump-sum tax treatment for series of withdrawals.
Next Steps
- Contact us by February 16, 2026: Ensure your RRSP is opened and funded before the deadline to maximize tax advantages.
- Share this opportunity: Forward this blog to friends and family who may benefit from the information about RRSPs.
- Have questions? Contact us to determine how RRSPs aligns with your family's goals.
- Review our November Blog for key tax season reminders