What You Need to Know About RRSPs
The deadline for contributing to an RRSP for 2023 tax year:
March 1, 2024
How much can you contribute to an RRSP
One of the main benefits of an RRSP is the tax deduction received on contributions. Each year your contribution limit is determined by several factors. The first is the lesser of 18% of your previous years earned income or annual RRSP limit. Current annual RRSP limits are:
2023: $30,780
2022: $29,210
2021: $27,830
2020: $27,230
Another factor that will affect your RRSP limits is whether or not your employer provides you with a pension. This would result in a pension adjustment, thus reducing your contribution limit.
Finally, any unused contribution room from previous years will be carried forward. To get an exact number for you personal situation I recommend setting up or logging into your My CRA Account.
Contributions can be made up until December 31st the year you turn 71.
Over contribution penalty
If you over contribute to an RRSP, you may be subject to a 1% penalty per month on contributions that exceed your limit by more than $2,000.
Making withdrawals from an RRSP
Any money inside an RRSP will grow tax free until withdrawn from the account. However, all withdrawals are considered income and will be subject to income tax. When making a withdrawal, your financial institution is required to withhold tax at source according to the following rates:
10% on amounts up to $5,000
20% on amounts over $5,000 up to $15,000
30% on amounts over $15,000
IMPORTANT: The tax withheld at source may not be enough to cover the tax owing. The actual tax owing will be determined by your marginal tax bracket at the time your file your tax return.
Making withdrawals from a spousal RSP
Please keep in mind, that if you made contributions to a spousal RRSP in the previous 3 years, any withdrawal could be considered your income if withdrawn in that time frame.
Home Buyers Plan (HBP) and Lifelong Learning Plan
Home Buyers Plan
First time home buyers may be eligible to withdraw up to $35,000 from an RRSP without any withholding tax with-drawn to purchase a house. Eligible Canadians will have 15 years to pay back the withdrawn funds to the RRSP. These payments paid back into the RRSP area considered re-payments and are not tax deductible contributions.
Lifelong Learning Plan
The LLP allows you to withdraw money from your RRSP to fund full time training or education for yourself or your spouse (or common-law partner). To help finance your child’s eduction refer to the RESP page. If eligible, you can withdraw up to $10,000 in a calendar year and up to $20,000 total. Similar to the HBP, you must make repayments to your RRSP and will have up to 10 years to repay the full amount.
Death of an RRSP annuitant
Since an RRSP is a registered account, the government allows you to designate a beneficiary. Generally there are two scenarios that would play out in the event of an RRSP annuitant’s death.
If the surviving spouse or common-law partner is designated as the beneficiary, they will be eligible to transfer the amount to their own RRSP without any tax consequences.
If any other person is designated as beneficiary, then the RRSP would have to be liquidated and claimed as income on the deceased annuitant’s final tax return.
Converting to a RRIF
As mentioned above, you can contribute to an RRSP until the end of year you turn 71. At that point, you will need to convert an RRSP to a RRIF. You can read all about RRIFs here.
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Disclosure: The information on this site should not be considered advice or solicitation to buy or sell any securities. Please see my Disclosure Page for a full disclaimer.