What is an RRSP?

A Registered Retirement Savings Plan (RRSP) allows savings for retirement to grow tax-deferred in a special plan registered with the Canadian government. RRSPs are a key part of retirement planning because of the tax advantages they offer. But you need to know the rules to get the most mileage out of RRSPs and avoid tax penalties.

RRSP contribution limit

  • The total amount you can contribute to your RRSP each year is made up of your contribution limit for the current year plus any "carry-forward" contribution room from previous years. You can over-contribute by up to $2,000 cumulatively without penalty.
  • Your RRSP contribution limit for 2025 is 18% of the “earned income” that you reported on your tax return in the previous year, up to a maximum of $32,490. For 2024, the limit was $31,560. If you have a company pension plan, your RRSP contribution limit is reduced – see the last bullet point below for details.
  • If you don't make the maximum allowable RRSP contribution in any given year, Canada Revenue Agency (CRA) lets you carry forward the unused contribution room indefinitely and adds this to the amount you can contribute in future years.
  • Both your annual contribution limit and any carry-forward contribution room are shown on your annual notice of assessment from CRA.

Do you have an employer-sponsored pension plan?

If so, your RRSP contribution limit is reduced by the “pension adjustment.” The pension adjustment is calculated by your employer and reported to CRA on your T4 each year. If you're a member of a defined contribution (DC) pension plan or defined profit sharing plan (DPSP), your pension adjustment is the total contributions to the plan made by you and your employer. If you’re a member of a defined benefit (DB) plan, your pension adjustment is determined by a formula designed to reflect the pension benefit entitlement you earned in the year. For more information, see the CRA website.

What is the age limit to contribute?

You can contribute to your RRSP up to December 31 of the year you turn 71. You must convert to a Registered Retirement Income Fund (RRIF) after that or purchase an annuity to avoid having the value of your RRSP fully taxed in the year.*

What can I do with an RRSP?

An RRSP is a simple way to save for retirement and pay less income tax. There are also other useful things you can do with your RRSP, including:

What are the main benefits of an RRSP?

  1. Tax-deferred investment growth: You don’t pay tax on investment earnings within the RRSP until funds are withdrawn (usually in retirement). This tax-deferred compounding can allow your retirement assets to grow faster.
  2. Tax-deductible contributions: When you make an RRSP contribution (within your contribution limits), you receive a deduction against net income on your tax return. Ideally, your marginal tax rate when you withdraw money out of the RRSP in retirement is lower than your tax rate when you made the contribution.
  3. Income-splitting opportunities: Once you convert your RRSP to a RRIF, income payments are eligible for pension income splitting (if over age 65).

* The information ontained in this article is provided for information purposes only and is not intended to represent specific individual financial investment, tax or legal advice nor does it constitute a specific offer to buy an/or sell securities. While the information contained in this article has been obtained from sources believed to be reliable, SLGI Asset Management Inc. cannot guarantee its accuracy, completeness or timeliness. Information in this document is subject to change without notice and SLGI Asset Management Inc. disclaims any responsibility to update it.