Retirement Savings Plan (RSP)

What is a RSP?

A Registered RSP is a saving or investing account with tax advantages.

The government implemented the Registered RSP to allow taxpaying Canadians to save for your own retirement.  The money you put in is tax-sheltered so that you are only taxed when you withdraw your funds from the RSP.

By contributing to a RSP, you’ll reduce your taxable income by the exact amount you put in that year.  For many taxpayers, this means money back when they file their tax returns.  For example, if you make $90,000/year and contribute $1,500 per month to an RSP, in a year your actual taxable income for the year becomes $72,000.

You can contribute to your RSP until December 31st of the year you turn 71.  The following limits apply annually.

Year Contribution limit
2013 $23,820
2014 $24,270
2015 $24,930
2016 $25,370
2017 $26,010
2018 $26,230

Your allowable RRSP contribution for the current year is the lowest of:

  • 18% of your earned income from the previous year, or
  • The maximum annual contribution limit for the taxation year, or 
  • The remaining limit after any company sponsored pension plan contributions.

Your contribution limit will appear in the Notice of Assessment you receive from the Canada Revenue Agency (CRA) after your tax return is processed.  Any withdrawal made prior to retirement must be reported on your tax return. You’ll then be taxed on the income amount withdrawn.

How can a RSP help you?

In retirement, your income will likely be taxed at a much lower rate than at the height of your career.  For this reason it’s important to think of a RSP as a “tax-deferred” account rather than a “tax-free” account.  As long as you do not plan to use your money until retirement, the RSP is ideal for shifting income from your top earning years when the highest taxes would apply, to your retirement, when income tax is reduced or no longer applicable.

Putting money into a RSP has major benefits:

  1. Your contributions are tax deductible
  2. Your savings grow tax-free inside a RSP, taxes are deferred until withdrawal
  3. The tax refund gives you the opportunity to save big each year during tax season.  You can choose an RSP savings account or RSP Guaranteed Investment Certificates (GICs) to grow money while enjoying the benefits of a tax-deferred account. 

Need more help?

We encourage you to contact us, should you have any questions.