Registered Retirement Savings Plan (RRSP)
What it is
A Registered Retirement Savings Plan is a Canadian registered account designed to defer income tax from working years into retirement. Contributions reduce the current-year taxable income; growth compounds tax-free inside the account; withdrawals are added to taxable income in the year withdrawn.
The tax mechanics favour savers whose marginal tax rate is higher in their working years than it will be in retirement — contributions happen at the higher bracket, withdrawals at the lower one, and the difference is real tax savings on top of the compounding benefit.
Who can open one
Canadian residents with earned income and a valid SIN can contribute up to and including the calendar year they turn 71. Contributions require a tax return in a prior year to generate contribution room — RRSP room is earned as 18% of the previous year's earned income, capped at the annual CRA dollar limit.
By December 31 of the year the account holder turns 71, the RRSP must be converted to an RRIF or an annuity. Otherwise, the full balance becomes taxable income in one year.
How contributions work
Annual room is the lesser of 18% of the previous year's earned income or the CRA dollar cap. Employer pension contributions create a "pension adjustment" that reduces personal RRSP room. Unused room carries forward indefinitely.
Contributions can be made until 60 days after year-end (typically the end of February or early March) and still be deducted against the previous year's income.
Tax treatment
Deductible on the way in, taxable on the way out. Interest, dividends, and capital gains accumulate untaxed inside the account. Foreign-withholding tax on dividends from US-listed securities is waived under the Canada-US treaty when held directly in an RRSP — a meaningful advantage for US-dividend-heavy strategies.
How withdrawals work
Any withdrawal is fully taxable at the account holder's marginal rate in the withdrawal year. The broker withholds tax at source (10%-30% depending on amount) as an estimate; the final liability is reconciled on the tax return.
Two special programs allow temporary withdrawals without tax: the Home Buyers' Plan (up to $60,000 for a first home, repaid over 15 years) and the Lifelong Learning Plan (up to $20,000 for education, repaid over 10 years). Missed repayments become taxable income in the year they should have been repaid.
At conversion to an RRIF, a mandatory minimum withdrawal schedule begins — rising as a percentage of the balance with age.