Registered retirement savings plan (RRSP)

Your RRSP contribution limit for 2021 is 18% of earned income you reported on your tax return in the previous year. That’s up to a maximum of $27,830. 

This limit also includes any unused contribution room you have from earlier years. 

And remember, any money put into an RRSP, up to the limit, reduces your taxable income for that year.

Your RRSP contribution limit is calculated each year and will appear on the Notice of Assessment you receive from the Canada Revenue Agency (CRA) after filing your taxes. You can also see your notice of assessment online at the CRA’s “My Account for Individuals” page.

Remember, the money you earned in the previous year is crucial to calculating how much you can contribute to your RRSP for the current tax year. And your yearly RRSP contributions can result in a substantial tax refund that you can use to:  

• reinvest in your RRSP, 
• pay down debt, or 
• invest in another tax-sheltered vehicle such as a tax-free savings account (TFSA).

All your RRSP contributions are tax deductible. This means you can reduce the amount of your taxable income. For example, let’s say you earned $50,000 last year and qualify for $10,000 in tax deductions. That means you’ll only have to pay taxes on $40,000 of your income.

You can contribute to an RRSP whenever you want. But the deadline for making a contribution that will affect your tax bill for any given year is 60 days after the end of that tax year. The date falls in early March of the following year. 

That’s OK. This just means you’ll have unused RRSP contribution room to carry forward. You can open and contribute to an RRSP at any time of the year. Just make sure you don’t exceed your contribution limit.

Get more answers to your RRSP contribution questions.

RRSPs offer tax-deferred savings. This means you won’t have to pay tax on any investments you have within an RRSP until you start withdrawing funds.

You can, but you’ll pay taxes every time you withdraw funds from your RRSP. 

The amount of tax you pay depends on how much you withdraw and your income bracket.  

As an example, let’s say you start withdrawing money from your RRSP after you retire at age 65. At this point in your life, you may be in a lower tax bracket. This means you’ll be paying less tax than you would if you with withdrew money from your RRSP in your 30s or 40s. That’s why Canadians are often encouraged to wait until they retire to start withdrawing from their RRSPs. 

Early withdrawals from RRSPs come with some major costs, including:

• loss of tax-sheltered compounding*,
• facing withholding tax, and
• permanent loss of contribution room.

Learn more about the hidden costs of early RRSP withdrawals.

*A tax-sheltered account lets interest grow within your account without being taxed until you make withdrawals. Compounding is what happens when your investment earnings or savings account interest is added to your original contribution.

But there are certain situations where early withdrawals from an RRSP may provide benefits. The government treats withdrawals to buy your first home (RRSP Home Buyers’ Plan) or finance your education (RRSP Lifelong Learning Plan) differently from other early RRSP withdrawals. Funds borrowed from the Home Buyers’ Plan and Lifelong Learning Plan are not taxable, as long as you repay the money to your RRSP with specific timelines.

See our RRSP FAQs for more answers to your questions. 

It depends how old you are when you retire. You must move your money out of your RRSP by December 31 of the year you turn 71. After that, you can convert your savings to another registered account like a registered retirement income fund (RRIF), purchase an annuity, or withdraw your funds. 

Depending on how your registered accounts are set up, they may be treated differently when you die.

In general, at the time of death, the owner of the RRSP is deemed to have cashed out their RRSP assets.

However, let's say you've named your spouse as the beneficiary of your RRSP. In this case, your RRSP can be rolled over to your spouse after your death. This roll-over would be tax-deferred, meaning your spouse won't have to pay taxes until they withdraw funds. Keep in mind that your spouse does not require additional RRSP contribution room when the rollover happens. Talk to a Sun Life advisor to learn more.

Your child will receive the full value of your RRSP funds. But the entire value of the RRSP will also be included as taxable income in the final tax return that will be filed when you die. Please note that generally, your estate is responsible for the associated tax liability. Speak to a lawyer or tax professional to better plan for your situation.

There is no way to transfer your RRSP account to someone else. You also can’t transfer money from your RRSP to someone else’s RRSP.