Income Tax Information

What is an RRSP?


An RRSP, or Registered Retirement Savings Plan, is a savings or investment account which allows you to defer paying tax on funds deposited to it. When you make a contribution to your RRSP, you get a tax deduction for the amount contributed. The deduction reduces taxable income, so the higher your marginal tax rate, the greater the tax savings will be.

earned in an RRSP is not taxable while it remains in the RRSP, including interest, dividends, and capital gains, so can grow tax free until the money is withdrawn. There may be tax withheld from dividends received from some foreign investments, but not from dividends received from US corporations. See our article on which investments should be held inside vs outside an RRSP.

Funds can be withdrawn from an RRSP at any time, but all withdrawal amounts must be included in taxable income. At the time funds are withdrawn, tax will be withheld based on the total withdrawal amount. See our article which details the amount of withholding tax on RRSP withdrawals.

Funds can remain in an RRSP until the year the taxpayer turns 71, at which time the funds must be withdrawn, or converted into a Registered Retirement Income Fund (RRIF). This maximum age was increased from 69 to 71 by the 2007 Federal budget, giving people an additional two years to contribute.

Theoretically, when you start withdrawing funds from an RRSP or RRIF, you will be in a lower tax bracket, and the funds can be withdrawn at a lower tax rate than when they were contributed.