What’s an RRSP?

Ever dream of having more money in your pocket now and when you retire? Ever dream of paying less tax on the money you make and the money you save? With a Registered Retirement Savings Plan (RRSP), you can have both. But what is an RRSP? And how can it help your dreams come to life?

What does RRSP stand for?

RRSP stands for Registered Retirement Savings Plan—a kind of investment account that’s registered with the Canadian government to help you save for retirement.

Registered accounts are given tax-deferred or tax-sheltered status by the government. Because of the tax benefits they offer, RRSPs have rules about how you put money in, how much you can put in, and whether you pay tax on any money you take out, among other things.

Investment accounts aren’t investments, they’re accounts that hold investments. Most RRSPs allow you to pick from a variety of investment options, like a basic daily interest account, guaranteed investment certificates or guaranteed interest accounts, stocks, bonds, or mutual funds, and more—all based on a list approved by the Canadian government

What are the benefits of an RRSP?

Some of the best things about saving for retirement with an RRSP are that you: 

Pay less tax on the money you make now—The money you put in your RRSP is tax deductible, which means it might lower the amount you have to pay when you file your income tax. It might even help net you a tax refund. 

Pay no tax on the money in the plan—Any growth within your RRSP is tax deferred, which means you don’t pay tax on it until you take it out. 

Pay less tax on the money you make later—Any contribution room you don’t use is added to your contribution room for the year to come, and it can build up over time. This means you can contribute more in the future when your income is higher—helping to lower your taxable income when you need it most.

Pay less tax on the money you take out—Your income is likely to be lower in retirement, which means when you finally start using your savings, it’ll be taxed at a lower rate than if you used it today.

What are the benefits of a group RRSP?

A group RRSP is an RRSP you join through your workplace or another organization you’re a part of. It's got all the same benefits as an individual RRSP, plus a few more:

Pay yourself first—A group RRSP allows for regular, automatic contributions that come straight off your pay, which means you stay on track for your goals without having to remind yourself to save.

Pay less tax when you get paid—When contributions come straight off your pay, they’re taken before your income tax is calculated, which means you get an immediate tax break.

Pay lower fees—A group RRSP usually offers more competitive fees than an individual RRSP, which means more money stays in your plan, invested for your future.

Save your employer’s money too—Many employers offer to match your contributions, putting money in your RRSP every time you do. If your employer matches your RRSP contributions, do your best to make the most of this opportunity to supercharge your savings.

How do you put money in your RRSP?

Whether you have an individual or group RRSP, you can make one-time, lump-sum contributions to your RRSP anytime, or you can use your bank’s ‘pay a bill’ feature to set up regular, automatic contributions from your bank account. If you have a group RRSP, you may be able to have your contributions taken straight off your pay.

You can usually find more information about opening an RRSP on your financial institution’s public website. If you’ve already opened one and just want to add contributions, you can usually just sign in to get started. If you need help with your Manulife group RRSP, visit our FAQ.

How much can you put in your RRSP?

While you can calculate it yourself, there’s a simple way to find the amount you can put in your RRSP each year: 

  1. Look at the last notice of assessment or notice of reassessment you got from the government. 
  2. Find your available contribution room. This is the maximum amount you can put in an RRSP for the tax year ahead. 

Any contributions you make to a specified pension plan (SPP), a pooled registered pension plan (PRPP) or your spouse’s RRSP or SPP also count against your contribution room, so keep that in mind.

When is the RRSP contribution deadline?

You can put money in your RRSP anytime, but if you want to lower your income tax for the current tax year, make your contributions no later than March 1 (February 29 if it’s a leap year). If the deadline falls on a weekend, it’s usually bumped to the next business day.  

Can you take money out of your RRSP?

You can take money out of your RRSP anytime, in most cases. But it’s not as simple as taking money out of your bank account. If you’re considering it, take a bit of time to learn all you can about when you can withdraw from your RRSP.

What happens to your RRSP when you retire?

Nothing has to happen to the money in your RRSP when you retire. As long as you have available contribution room, you can keep putting money in your RRSP until December 31 of the year you turn 71. At that point, you’ll have to transfer your money out of your RRSP and into a retirement income plan so you can start using your savings as income. 

What happens to your RRSP if you die?

The rules about what happens to your RRSP savings when you die can be complicated. But generally, if you die with money in an RRSP:

  • And you’ve named a beneficiary within the plan who is not your spouse or common-law partner, the money you’ve saved is paid to your beneficiary or beneficiaries according to your instructions.
  • And you’ve named your spouse or common-law partner as the only beneficiary within the plan, they can take cash, or have the money you’ve saved rolled over to an RRSP in their name so it can continue to grow tax free. 
  • And you haven’t named a beneficiary within the plan, the money you’ve saved becomes part of your estate.

Is an RRSP right for you?

Thanks to RRSPs, paying less tax while you grow your retirement savings isn’t just a dream. But there are other plans that may help you save for the future you dream of. Be sure to ask for advice from an expert you trust to help you decide whether the benefits of an RRSP, or group RRSP, are right for you.

The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.