Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) is a retirement plan that is registered with the federal government and that you or your spouse or common-law partner establish and contribute to.

Who is eligible to buy RRSPs?

Anyone who has earned income, has a social insurance number and has filed a tax return can contribute to an RRSP up until December 31 of the year they turn 71. After this age if you continue to have earned income, you can contribute to a Spousal RRSP up until December 31 of the year your spouse turns 71.

This maximum age was increased from 69 to 71 in the 2007 Federal budget, giving people an additional two years to contribute.

Maximum contribution limits

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

  • 18% of your earned income from the previous year, or
  • The maximum annual contribution limit (See chart) for the taxation year less
  • Any company sponsored pension plan contributions (PA – pension adjustment)
  • A Past Service Pension Adjustment (PSPA) arises in rare instances where a member of a pension plan has benefits for a post-1989 year of service upgraded retroactively.
  • Pension Adjustment (PA) represents the value of any pension benefits accruing from participation in a registered pension plan or deferred profit sharing plan.Notes

Earned income

For most people, earned income for RRSP purposes is the amount in box 14 of their T4 slips.

Earned income also includes self-employed net income, CPP/QPP disability payments and net rental income.

Income sources that do not qualify as earned income include investment income, pensions (including DPSP, RRIF, OAS, and CPP/QPP income), retiring allowances, death benefits, taxable capital gains and limited-partnership income.

Revenue Canada’s Form T1023 (Calculation of Earned Income) outlines all sources of earned income.

Obtaining your contribution limit

After processing your tax return, Revenue Canada sends a Notice of Assessment, which includes your next years’ contribution limit. This document also shows your unused contribution room.

Or you can call your local Tax Information Phone Systems (TIPS) number, which is found in the blue pages of your phone book under Tax Services. Be sure to have your SIN and previous tax return ready.

Contributing securities

You don’t necessarily need cash to make an RRSP contribution. You can contribute (in kind) a security you already own outside your RRSP.

The “in kind’ contribution is equal to the fair market value of the security when contributed. The security is deemed to have been disposed of at time of contribution. Be aware that this can have tax consequences.

Unused/carry forward contribution room

RRSP contribution room accumulated after 1990 can be carried forward to Subsequent years. If you are unable to maximize your RRSP contribution this year, you are allowed to make up the difference in later years.

Over contribution

The $2,000 lifetime over contribution allowance applies to those who have reached age 18 or older.

Your over contribution can be used as a deduction in future years. ($2,000 over contribution this year an be used as part of your deduction in the following year.

Any amount in excess of $2,000 will be charged a penalty of 1% per month.

Deadline to receive a tax deduction

The deadline for a RRSP tax contribution is always 60 days after the end of the previous year to be eligible for a deduction for the 2013 tax year. This year the deadline is March 3, 2014. Consult with your financial institutions about how they are able to accommodate deadlines.

Contributions made in the first 60 days of the year can be applied against the previous taxation year or in any subsequent year.

If you are turning 71, this is the last year in which you may contribute to your RRSP. You must convert your RRSP by December 31 in the year you turn 71.

What is the Home Buyers’ Plan?

With the Home Buyers’ Plan (HBP), you can, take up to $25,000 out of your RRSP to put towards the down payment on your first home and you won’t be taxed on it. However, you do have to pay it back into your RRSP over the next 15 years.

Lifelong Learning Plan (LLP)

With the Lifelong Learning Plan (LLP), you can withdraw up to $10,000 a year, or up to $20,000 in total each time you participate in the LLP to help pay for your education. All you have to do is repay at least 10% per year for up to ten years.

Participants must start to make repayments two years after their last eligible withdrawal, or five years after the first withdrawal, depending on which due date comes first. Amounts withdrawn must be repaid within 10 years.

Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is exempt from tax for the time the funds remain in the plan. However, you generally have to pay tax when you cash in or receive payments from the plan.

Primary investment options for an RRSP account:

  • Stocks & Bonds (publicly traded)
  • Mutual Funds
  • GICs & Term Deposits
  • Canada Savings Bonds
  • Mortgages
  • Investment-grade gold & silver (bullion coins, bars, & certificates)

Other qualified RRSP investment options

If you have questions about investment choices for an RRSP account – that is not listed above – contact our office for more info.

Spousal RRSPs

With a spousal RRSP, you can direct part or all of your maximum allowable contribution to an RRSP in your spouse’s name. A spousal RRSP will help you save tax during retirement through income splitting, since the income eventually created from the funds will then be taxed at your spouse’s lower tax rate.

Withdrawal Options

  • RRIF (Registered Retirement Income Fund)
  • Home Buyers Plan
  • Lifelong Learning Plan

You can withdraw from RRSPs to buy or build a home for yourself or for someone who is related to you and is disabled. (Home Buyers’ Plan). Please note that restrictions apply.

You can withdraw from RRSPs to finance training or education for you or your spouse or common-law partner. (Lifelong Learning Plan)