What is an RRSP? How contributions, tax savings, and withdrawals work
TL;DR
An RRSP is a registered account that lowers your taxable income today and grows tax-deferred until you withdraw — usually in retirement when your tax rate is lower. The 2026 contribution limit is the lesser of 18% of 2025 earned income or $33,810. The account must convert to a RRIF or annuity by the end of the year you turn 71.
What an RRSP is
A Registered Retirement Savings Plan is a tax-deferred account designed to help Canadians save for retirement. The federal government created the RRSP in 1957, and despite newer accounts like the TFSA and FHSA, it remains the workhorse of Canadian retirement planning — particularly for higher earners. The mechanics are simple: contributions reduce your taxable income today, growth inside the account is not taxed year-over-year, and tax is only paid when you withdraw, typically in retirement when your income (and therefore your marginal tax rate) is lower.
Like the TFSA, an RRSP is a tax wrapper rather than a single product. You can hold cash, GICs, ETFs, mutual funds, individual stocks, bonds, and most other qualified investments inside one.
The 2026 numbers at a glance
- 2026 contribution limit: lesser of 18% of 2025 earned income or $33,810
- Income required to hit the cap: $187,833 of 2025 earned income
- 2025 contribution deadline: March 2, 2026
- Mandatory conversion to RRIF or annuity: December 31 of the year you turn 71
- Over-contribution buffer: $2,000 lifetime, then 1% per month penalty
How RRSP contribution room is calculated
Each year, you accumulate new RRSP room equal to 18% of your "earned income" from the prior year, up to a federal cap. Earned income includes employment income, net self-employment income, net rental income, and a few smaller items — but not investment income, capital gains, or pension income.
Unused room carries forward indefinitely. If you had $30,000 of unused room going into 2026 and earn enough to add another $20,000 this year, your total contribution room is $50,000. The CRA reports your current limit on your most recent Notice of Assessment and in CRA My Account.
If you participate in a registered pension plan or deferred profit-sharing plan at work, a "pension adjustment" reduces your next year's RRSP room. This prevents double-dipping the retirement-savings tax break.
How the tax deduction actually works
An RRSP contribution is deducted from your gross income on your tax return. If you earn $100,000 in Ontario and contribute $10,000 to an RRSP, you are taxed as if you earned $90,000. At a roughly 43% marginal tax rate, that contribution generates about $4,300 of tax refund.
The refund is not free money — it is a deferral. When you withdraw $10,000 from an RRSP in retirement at, say, a 25% marginal rate, you pay $2,500 of tax. The arbitrage between today's higher rate and tomorrow's lower rate is the entire point of an RRSP.
You can carry the deduction forward. If you contributed $10,000 in 2026 but expect to be in a much higher tax bracket in 2027, you can hold the contribution receipt and claim the deduction next year. The contribution still counts against your 2026 room, but the deduction is taken later.
Withdrawals and tax
Anything you take out of an RRSP is added to your taxable income for that year. Your financial institution also withholds tax up front, at federal rates of 10% on amounts up to $5,000, 20% on amounts between $5,001 and $15,000, and 30% on anything over $15,000 (rates differ in Quebec). The withholding is a prepayment, not the final tax — your true liability is settled when you file.
Two programs let you withdraw tax-free if you repay on schedule:
- Home Buyers' Plan (HBP): Withdraw up to $60,000 toward a first home purchase. Repay over 15 years starting two years after the withdrawal.
- Lifelong Learning Plan (LLP): Withdraw up to $10,000 per year ($20,000 lifetime) for full-time training or education. Repay over 10 years.
The age-71 deadline
By December 31 of the year you turn 71, you must do one of three things with your RRSP: convert it to a Registered Retirement Income Fund (RRIF), buy an annuity, or withdraw the whole balance. The first option is by far the most common because it preserves the tax-deferred wrapper. From age 72 onward, you must withdraw a minimum amount from your RRIF each year, which the government taxes as ordinary income.
Spousal RRSPs
A spousal RRSP is owned by one spouse but funded by the other. The contributing spouse takes the tax deduction; the receiving spouse owns the assets and is taxed on withdrawals. The strategy is most useful when one partner expects to be in a much higher tax bracket in retirement than the other — splitting income across two retirees can save thousands of dollars per year in tax.
RRSP vs TFSA: a one-paragraph framework
If your marginal tax rate today is higher than what it will be in retirement, the RRSP wins on pure math. If it will be the same or lower today, lean TFSA. For most middle-class Canadians earning $60,000–$120,000, both accounts are valuable and the right move is to use both. We work through the decision in our which-to-max-first guide.
Common RRSP mistakes
- Contributing without checking your room. Over-contributions over $2,000 trigger a 1% per-month penalty.
- Withdrawing early outside HBP/LLP. The withdrawal is fully taxable AND the room is lost forever.
- Holding low-growth assets in an RRSP and high-growth assets in a TFSA. The opposite is usually better — tax-free growth is wasted on bond yields.
- Forgetting to claim the deduction in a high-bracket year. A 2025 contribution can be deducted in 2026 or later for a bigger refund.
- Letting US-listed ETFs sit in a TFSA when an RRSP would shelter the dividends. The 15% withholding tax does not apply in an RRSP.
- Waiting until 72 to start drawing down. Sometimes early RRSP withdrawals in your 60s are smarter than waiting for forced RRIF minimums.
What changes in 2026
The 2026 contribution cap rose from $32,490 (2025) to $33,810. The income required to hit the cap is now $187,833. No structural changes to the RRSP program were announced in the 2026 federal budget.
Sources
Related calculators
- RRSP calculator — Project growth and tax savings
- Income tax calculator — See your refund from a contribution
- RRIF calculator — Plan your post-71 withdrawals
Frequently asked questions
Editorial disclaimer
This guide is published by LoonieLabs Editorial for general information only. It is not financial, tax, legal, or investment advice and should not be relied on as such. Rules, limits, and dollar figures change. Always verify with the Canada Revenue Agency or a qualified professional before acting on anything you read here. Last reviewed: April 19, 2026.
Written and reviewed by Shrey Patel — Founder & Editor-in-Chief
Winnipeg, MB · Fact-checked by our Editorial reviewer · Last reviewed April 19, 2026 · LinkedIn
Founder of LoonieLabs · based in Winnipeg, MB · writes and reviews every page on the site I oversee every figure on this page personally — verified against primary sources (CRA, IRCC, Statistics Canada, the Bank of Canada, or the originating provincial ministry). LoonieLabs has no affiliate relationships with any bank, credit card, or immigration consultant featured on this site. Spotted a mistake? Tell us.
Published by the LoonieLabs Editorial Team.