RRSP (Registered Retirement Savings Plan)
An RRSP (Registered Retirement Savings Plan) is a Canadian tax-deferred retirement account. Contributions may reduce your taxable income in the year you contribute, but withdrawals are taxed as income later, typically in retirement.
Why it matters
- RRSPs are often most valuable when your tax rate at contribution is higher than your expected tax rate in retirement.
- Contribution room is based on earned income, up to an annual government-set limit, and unused room carries forward.
- Early withdrawals (outside specific programs) are taxed and generally lose that contribution room permanently.
Simple example
- Contributing to an RRSP while working (and in a higher tax bracket) and withdrawing in retirement (in a lower tax bracket) can reduce lifetime taxes paid.
- RRSP withdrawals are subject to withholding tax at the time of withdrawal, then reconciled against your actual tax owing when you file.