The Complete Guide to RRSPs in Canada (2025)

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is a tax-advantaged savings account designed to help Canadians save for retirement. It's one of the most powerful tools available for reducing your taxes today while building wealth for the future.

RRSPs offer two key benefits:

• Tax-deductible contributions: Money you put into an RRSP reduces your taxable income for the year
• Tax-deferred growth: Investments inside your RRSP grow without being taxed until you withdraw them

2025 RRSP Contribution Limits

For the 2025 tax year, the RRSP contribution limit is:

Deadline: The deadline to contribute for the 2025 tax year is March 2, 2026.

Earned income includes employment income, self-employment income, and rental income. It does not include investment income, pension income, or RRSP withdrawals.

Example Calculation

If your 2024 earned income was $100,000:

• 18% of $100,000 = $18,000
• This is less than the $32,490 maximum
• Your 2025 contribution room = $18,000 (plus any unused room from previous years)

How RRSP Tax Benefits Work

When you contribute to an RRSP, you can deduct that amount from your taxable income. This effectively gives you a "refund" equal to your contribution multiplied by your marginal tax rate.

Real Example

Let's say you earn $80,000 in Ontario and contribute $10,000 to your RRSP:

• Your marginal tax rate: approximately 29.65%
• Tax savings: $10,000 × 29.65% = $2,965
• Your effective cost: $10,000 - $2,965 = $7,035

This means a $10,000 RRSP contribution only "costs" you $7,035 after the tax refund—and you now have $10,000 growing tax-free inside your RRSP.

When RRSPs Work Best

RRSPs are most beneficial when:

• You're in a high tax bracket now and expect to be in a lower bracket in retirement
• You want to reduce this year's taxes
• You're saving for a first home (Home Buyers' Plan) or education (Lifelong Learning Plan)

Understanding RRSP Contribution Room

Your RRSP contribution room is the maximum you can contribute without penalty. It's calculated as:

• 18% of your previous year's earned income (up to the annual limit)
• Plus any unused room from previous years (carries forward indefinitely)
• Minus any pension adjustments (if you have a workplace pension)

Finding Your Contribution Room

The easiest way to find your exact contribution room is to check your CRA My Account online or look at your Notice of Assessment from last year's tax return.

RRSP Withdrawal Rules

When you withdraw money from your RRSP, it's added to your taxable income for the year. Additionally, the financial institution will withhold tax at source:

(Quebec rates differ)

The withheld amount is just a prepayment—you'll owe more or get a refund based on your actual tax rate when you file your return.

RRIF Conversion

By December 31 of the year you turn 71, you must convert your RRSP to a Registered Retirement Income Fund (RRIF) or purchase an annuity. You cannot contribute to an RRSP after this date.

Home Buyers' Plan (HBP) & Lifelong Learning Plan (LLP)

Home Buyers' Plan (HBP)

The HBP lets first-time home buyers withdraw up to $35,000 from their RRSP tax-free to buy or build a qualifying home.

• Must be repaid over 15 years (starting the second year after withdrawal)
• Minimum annual repayment = 1/15 of withdrawn amount
• Missed repayments are added to your taxable income

Lifelong Learning Plan (LLP)

The LLP lets you withdraw up to $10,000 per year (max $20,000 total) to fund full-time education.

• Must be repaid over 10 years
• You or your spouse/partner must be enrolled in a qualifying program

Smart RRSP Strategies

1. Contribute Early in the Year

Contributing at the start of the year rather than the deadline gives your investments an extra year of tax-free growth.

2. Spousal RRSP

If one spouse earns significantly more than the other, contributing to a spousal RRSP can help split income in retirement and reduce the couple's overall tax bill.

3. Don't Always Claim the Deduction Immediately

You can contribute to your RRSP now but carry forward the deduction to a future year when you're in a higher tax bracket. This maximizes the value of your deduction.

4. Invest Your Tax Refund

Instead of spending your RRSP tax refund, consider reinvesting it into your TFSA or next year's RRSP to accelerate your wealth building.

Key Takeaways

• RRSPs let you deduct contributions from your taxable income
• 2025 contribution limit is $32,490 or 18% of earned income (2024: $31,560)
• Unused room carries forward indefinitely
• Withdrawals are taxed as income—ideally in retirement when you're in a lower bracket
• HBP and LLP allow tax-free withdrawals for specific purposes