RRSP
Contributions are tax-deductible now; growth and withdrawals are taxed later, in retirement.
The basics
An RRSP lets you deduct contributions from your income today, defer tax on growth while the money stays inside the plan, and pay tax only when you eventually withdraw — ideally in retirement, when your income (and tax rate) may be lower.
It’s built for long-term retirement saving: withdrawals before retirement are fully taxed as income in the year you take them out, on top of upfront withholding tax, which makes early withdrawals expensive.
Room is tied to your income, not just your age — no earned income in a given year means no new RRSP room from that year.
How much you can put in
Your annual limit is the lesser of 18% of your prior year’s earned income or the year’s dollar limit ($33,810 for 2026), plus any unused room carried forward from previous years, minus any pension adjustment (PA) if you or an employer contributed to a workplace pension or group plan.
Unlike TFSA room, RRSP room carries forward indefinitely but is never simply "given" — it has to be earned through income, so someone with irregular or no earned income accumulates little or no new room.
A related but distinct figure is the money purchase (MP) limit ($35,390 for 2026), used for defined-contribution pension plans — it is not your personal RRSP limit, though the two are calculated on a related schedule.
RRSP tax treatment
| Treatment | |
|---|---|
| Contributions | Tax-deductible against income in the year contributed (or a later year, if you carry the deduction forward) |
| Growth inside the account | Tax-deferred — no annual tax while it stays in the plan |
| Withdrawals | Fully taxed as income in the year withdrawn, plus upfront withholding tax |
| Effect on income-tested benefits (OAS, GIS, CCB) | Withdrawals count as income and can reduce GIS, trigger OAS clawback, or reduce CCB |
| Effect on contribution room | A withdrawal does NOT restore room — once withdrawn (outside HBP/LLP), that room is gone for good |
2026 combined federal + Ontario marginal tax rates (regular income)
The core RRSP decision usually comes down to comparing your marginal rate today against your expected marginal rate in retirement. A higher rate today favours an RRSP deduction; a lower or similar rate favours a TFSA.
| Taxable income | Combined marginal rate |
|---|---|
| Up to $53,891 | 19.05% |
| $53,891 – $58,523 | 23.15% |
| $58,523 – $94,907 | 29.65% |
| $94,907 – $107,785 | 31.48% |
| $107,785 – $111,814 | 33.89% |
| $111,814 – $117,045 | 37.91% |
| $117,045 – $150,000 | 43.41% |
| $150,000 – $181,440 | 44.97% |
| $181,440 – $220,000 | 48.26% |
| $220,000 – $258,482 | 49.82% |
| Over $258,482 | 53.53% |
TFSA vs. RRSP: which comes out ahead for you?
Adjust the numbers to match your own contribution, time horizon, and tax brackets. The RRSP line assumes your tax refund each year is reinvested, since that refund is part of what makes the RRSP work.
Illustrative only. Assumes contributions at the start of each year, a constant annual return, and today's tax brackets held constant. Real returns vary year to year and tax brackets are indexed annually.
Getting money out
Any withdrawal is added to income for that year and subject to upfront withholding tax (roughly 10–30% depending on the amount and province, with the balance reconciled on your tax return).
Two special programs let you withdraw without immediate tax, provided you repay: the Home Buyers’ Plan (HBP) — up to $60,000 for a qualifying first home, repaid over 15 years starting the second year after withdrawal — and the Lifelong Learning Plan (LLP) — up to $10,000/year, $20,000 total, for qualifying education, repaid over 10 years.
RRSPs must be converted — typically to a RRIF or annuity — by December 31 of the year you turn 71; you can’t hold a personal RRSP past that point.
What happens if you go over
You’re allowed a lifetime $2,000 over-contribution cushion with no penalty (a buffer for estimation error, not an extra deduction).
Beyond that $2,000, excess contributions are taxed at 1% per month until withdrawn or absorbed by new room.
Is this a fit?
- People in a higher tax bracket now than they expect to be in retirement — the deduction is worth more today
- Anyone with an employer RRSP match — that match is close to free money and should usually be captured before anything else
- Those who want to reduce taxable income in a specific high-earning year
RRSP vs. TFSA — which wins, roughly
| Your situation | Likely better choice |
|---|---|
| Higher income now than expected in retirement | RRSP |
| Employer matches RRSP contributions | RRSP (at least up to the match) |
| Lower income now than expected in retirement | TFSA |
| Need flexible, penalty-free access | TFSA |
| Want to reduce this year’s taxable income | RRSP |
How it fits with the rest of your plan
- A spousal RRSP lets a higher-earning spouse contribute (using their own room) to a plan owned by the lower-earning spouse, splitting retirement income and future tax more evenly between them.
- FHSA and HBP can be combined for a first home purchase — money can come from both, though not for the exact same portion, meaningfully increasing what a first-time buyer can withdraw tax-free.
- Once you retire, RRSP/RRIF withdrawals are taxed as regular income and count toward OAS clawback and GIS testing — many retirees deliberately draw down RRSPs earlier and delay CPP/OAS to manage this.
What trips people up
- Contributing when in a low tax bracket, then withdrawing in a similarly low bracket later — the deduction was worth little and the eventual withdrawal is still fully taxed
- Forgetting HBP/LLP repayments — a missed annual repayment is added to your income for that year instead
- Not naming a beneficiary (or naming the estate by default), which can expose the RRSP to probate fees
- Withdrawing early to cover a short-term cash need, losing both the room and paying withholding tax and income tax on the withdrawal
Eligible investments
Cash, GICs, mutual funds, ETFs, individual stocks and bonds, and segregated fund contracts.
A segregated fund RRSP adds maturity/death benefit guarantees and potential creditor protection on top of the RRSP’s tax deferral — relevant for business owners and professionals concerned about creditor exposure.
Naming a beneficiary directly on an insurance-contract RRSP can allow proceeds to bypass probate on death, unlike a plain brokerage RRSP where the estate is typically involved unless a successor annuitant is named.
Someone earning $90,000/year contributing $10,000 to their RRSP would save roughly $2,965–$3,148 in tax immediately (at the ~29.65–31.48% marginal rate shown below), with the $10,000 then growing tax-deferred until withdrawn in retirement.
Actual outcomes depend on your income, tax situation, and the rules in effect when you contribute or withdraw. Contact Achyut for guidance specific to your situation.