RRSP Frequently Asked Questions (Registered Retirement Savings Plan)

Q: What is an RRSP (Registered Retirement Savings Plan)?

A: A Registered Retirement Savings Plan (RRSP) is a government-registered savings plan
that provides tax advantages to help Canadians prepare for retirement in advance.
The biggest benefit of an RRSP is that it allows you to
defer paying tax.

Q: What are the benefits of opening an RRSP?

A: The main benefit is tax deferral.
Contributions you make to your RRSP can reduce your taxable income for the year.
Investment growth inside the RRSP is also tax-deferred — you don’t pay tax on the growth
until the money is withdrawn from the RRSP, at which point it is taxed as income for that year.

For example: If your total income for the year is CAD $100,000 and you contribute CAD $10,000 to your RRSP,
your taxable income for that year will be reduced to CAD $90,000.
If your marginal tax rate at $100,000 of income is 38.29%, then contributing CAD $10,000 to your RRSP
can save you about CAD $3,829 in tax.

Q: Who is an RRSP most suitable for?

A: RRSPs are particularly suitable for people with higher incomes.
Because they are in a higher tax bracket, the same dollar amount of RRSP contributions will create
a larger tax deferral and greater tax savings.

Q: Am I eligible to open an RRSP?

A: You can contribute to an RRSP if:

• You are 71 years of age or younger, and
• You have earned income in Canada, and
• You have filed a tax return in Canada.

Once you reach age 71, you can no longer make new RRSP contributions.

Q: How much RRSP contribution room do I have?

A: Your RRSP contribution room for the current year is calculated as
18% of your earned income from the previous year,
up to a maximum set by the federal government.
(For the 2020 tax year, the maximum limit was
CAD $27,230.)

Unused RRSP contribution room from previous years can be carried forward.
You can find your exact RRSP contribution room by logging into your CRA My Account or by contacting the CRA:

• Website: https://www.canada.ca/en/revenue-agency.html
• Phone: 1-800-267-6999

Q: What counts as “earned income” for RRSP purposes?

A: Earned income includes:

salary or wages, self-employment income, net rental income, and certain support (alimony/maintenance) payments.

Earned income does not include investment income, pensions, or retirement benefits and similar types of income.

Q: What if I contribute more than my RRSP limit?

A: The CRA allows you to over-contribute up to CAD $2,000 above your RRSP limit without penalty.
However, if your contributions exceed your available RRSP room by more than CAD $2,000,
the CRA will charge a penalty tax of
1% per month on the excess amount.

Q: What types of investments can I hold inside my RRSP?

A: The following are common qualified RRSP investments:
cash, mutual funds, Guaranteed Investment Certificates (GICs), stocks, and bonds.

Q: What is a Spousal RRSP?

A: A Spousal RRSP is a type of RRSP that allows retirement income to be
shifted from the higher-income spouse to the lower-income spouse,
helping balance income between spouses and reduce the household’s overall tax burden.

When opening a Spousal RRSP:

• The account holder (annuitant) is the lower-income spouse.
• The contributor is the higher-income spouse.

For tax purposes, the contributor can claim a deduction for contributions made to the spouse’s RRSP,
thereby lowering their own taxable income.

Important: If the spouse (the account holder) withdraws funds from the Spousal RRSP
within 3 calendar years of the contribution,
the withdrawn amount will be attributed back to the contributor and included in the contributor’s income for that year.
After 3 years, withdrawals will be taxed in the hands of the account holder instead.

Q: Can I use my RRSP to buy a home? (Home Buyers’ Plan, HBP)

A: First-time home buyers may participate in the Home Buyers’ Plan (HBP).
Under this program, you can withdraw up to CAD $35,000
from your RRSP on a tax-free basis to use as a down payment on your first home.
A couple may withdraw up to CAD $70,000 in total from their RRSPs.

Note: The HBP can only be used for the purchase of a
qualifying first principal residence.
The amount withdrawn must be repaid to your RRSP over a period of 15 years,
starting in the second year after the withdrawal.

Q: When can I withdraw money from my RRSP?

A: Before age 71,
you may withdraw funds from your RRSP at any time and in any amount,
but the withdrawn amount will be included in your income for that year and taxed accordingly.

After you turn 71,
if you still have money in your RRSP, you must convert it to a RRIF (Registered Retirement Income Fund)
or another allowed retirement income option.
The government requires that you withdraw at least a minimum amount from your RRIF each year,
and these withdrawals will be included in your taxable income.