What is a Registered Retirement Savings Plan (RRSP)?
Registered Retirement Savings Plan (RRSP)
The registered retirement savings plan (RRSP) is specially designed to provide you with retirement income. It is advantageous because your contributions entitle you to a tax deduction and generate investment income that is sheltered from income tax.
When you withdraw your funds at retirement, they become taxable. However, the taxation rate applicable is generally lower because your retirement income is usually lower, too.
The amount you may invest in your RRSP this year is determined on the basis of the income you earned last year. You may contribute up to 18% of that income, less the pension adjustment, up to a maximum of $18,000.
You may contribute to your RRSP up to the end of the year in which you turn 69. You may then convert your RRSP into a registered retirement income fund (RRIF) or other retirement income.
Depending on your needs and your investment objectives, you have several investment options when you contribute to an RRSP, including:
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principal guaranteed with an alternative investments |
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How do I set up an RRSP?
Setting up an RRSP
You set up a registered retirement savings plan account through a financial institution such as a bank, caisse populaire, or credit union. Your financial institution will advise you on the types of RRSP and the investments they can contain.
You may want to set up a spousal or common-law partner RRSP. This type of plan can help ensure that retirement income is more evenly split between both of you. The benefit is greatest if a higher-income spouse or common-law partner contributes to an RRSP for a lower-income spouse or common-law partner. The contributor receives the short term benefit of the tax deduction for the contributions, while the annuitant, who is likely to be in a lower tax bracket during retirement, receives the income and reports it on his or her tax return.
You may want to set up a self-directed RRSP if you prefer to build and manage your own investment portfolio by buying and selling a variety of different types of investments. For details about eligible investments, see Self-directed RRSPs.
If you are considering this type of RRSP, be sure to consult with your financial institution.
You make your RRSP contributions directly to the RRSP issuer. For details, see Contributing to an RRSP.
List of definitions related to this topic.
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What are my options for my own RRSP when I turn 69?
Options for your own RRSPs
By the year you turn 69, you have to choose one of the following options for your RRSPs:
- withdraw them;
- transfer them to a RRIF;
- use them to purchase an annuity for life; or
- use them to purchase an annuity spread over a number of years.
When you withdraw funds from your RRSPs, your RRSP issuer will withhold some tax. For details, see Making Withdrawals.
Your RRSP issuer will not withhold tax on amounts that are transferred directly to a RRIF or that are used to purchase an annuity. You may have to pay tax on the income when you start receiving payments from the RRIF. Enter these payments as income on your return for the year you receive them.
For details, see Transferring.
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What is a self-directed RRSP?
Self-directed RRSPs
A self-directed RRSP allows you to build and manage your own investment portfolio by buying and selling a variety of different types of investments. This page gives details about eligible investments. If you are considering this type of RRSP, be sure to consult with your financial institution.
You can contribute certain property to a self-directed RRSP, such as a mortgage, shares, cash, bonds, or a unit of a mutual fund trust.
For some contributions, you may have to include an amount in your income.
If you want to know more about the type of property you can contribute to a self-directed RRSP and the rules that affect your income, see IT-320, Qualified Investments – Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds, or contact your plan issuer.
Note
You do not need to report any transactions for items held in your RRSP.
For example, you do not report interest earned in the RRSP on your tax return, as this is an investment transaction of the RRSP itself.
However, any money you remove from the plan is no longer sheltered from taxation and you must report it on your return.
List of definitions related to this topic.
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What are my options when I withdraw from my Retirement Savings Plan?
Making withdrawals
Any income you earn in the RRSP is usually exempt from tax for the time the funds remain in the plan. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan.
If you own locked-in RRSPs, generally you will not be allowed to withdraw funds from them. If you do not know if your RRSPs are locked in, contact your RRSP issuer. If your RRSPs are not locked in, you can withdraw funds at any time.
Note
If you directly transfer funds from one RRSP to another, we consider this to be a transfer of funds, not a withdrawal. See Transferring for details.
Glossary
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How do I transfer my RRSP from one Registered Plan to another?
Transferring
You can transfer certain types of payments to an RRSP or from one registered plan to another, such as a registered pension plan (RPP), registered retirement income fund (RRIF), or a deferred profit sharing plan (DPSP).
You have to transfer certain payments directly—to ensure that these funds are transferred tax free, you must ask the payer to transfer them directly.
Generally, amounts you transfer directly to your RRSP do not affect your RRSP deduction limit. However, you may need to include an amount in income and claim an offsetting deduction.
You can also use certain payments from an RRSP or a RRIF to buy yourself an eligible annuity.
Amounts cannot be transferred to an RRSP if you were over 69 at the end of the tax year. See Options when turning 69 for more information
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What is needed for retirement?
Retirement will probably be a time for you to do the things you’ve always wanted to do. But will you have the means to do so? Will you even be free of financial worries?
Life expectancy and retirement expectancy are continuing to increase—so why not plan your retirement today?
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RRSP: The Basics |
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Evaluating Your Needs |
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Where to Invest |
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Other Sources of Retirement Income |
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