Understanding
RRSPs

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) permits an individual to contribute to a personal retirement plan, and to deduct these contributions (within limits) from taxable income.

Many people consider the RRSP to be a must-have when it comes to saving for retirement: almost six million Canadians contribute to one each year. But did you know that the RRSP is also a powerful tax-planning tool? It pays to know about the RRSP tax deductions that you could use.

How RRSPs work

The RRSP assets grow on a tax-deferred basis until they are withdrawn (ideally, in retirement), at which point the withdrawals are fully taxable (with exceptions for withdrawals made under the Home Buyers’ Plan or Lifelong Learning Plan).

Types of RRSP

An RRSP can be personal or spousal, group or individual, locked-in or not locked in. A group RRSP may also have restricted access.

Personal RRSP – With a personal RRSP, the annuitant makes tax-deductible contributions to his or her own plan.

Spousal RRSP – With a spousal RRSP, the annuitant’s spouse or common-law partner makes tax-deductible contributions to the annuitant’s RRSP. The annuitant’s spouse is considered the “contributor spouse” to that spousal RRSP.

Group RRSP - An employer might sponsor a “Group” RRSP for its employees. A Group RRSP is not a legal entity in itself – rather, it is a grouping of separate RRSP accounts.

Individual RRSP - An individual RRSP is simply an RRSP that is not also a Group RRSP.

Locked-In RRSP - The term “locked-in” means that access to these funds by the plan member will be subject to restrictions, both with respect to the amounts that can be received each year, and when access to these funds will become available.

Not locked-in RRSP – An RRSP account that does not have restrictions on the amounts that can be withdrawn, nor access to when the funds are available.

RRSP Contribution limits

The maximum you can contribute to a personal RRSP and/or a spousal RRSP for spouse or common-law partner in 2024 is 18% of your earned income, or $30,780, whichever is the lowest amount, minus any pension adjustment. Learn More

Investing in RRSP

The CRA allows you to hold various types of investments in an RRSP account, below is a list of those investments:

Mutual funds: These are groups of stocks and/or bonds (often containing hundreds of assets), which have been selected by investment managers. They give your portfolio considerable diversification, among other benefits.

ETFs: These are similar to mutual funds, except they are traded on stock exchanges, often have less ongoing involvement from investment managers and usually come with lower management fees.

Bonds: These are loans to governments and companies, and so, while the potential returns they offer are usually lower than what you might get with stocks, the risks are usually less.

Stocks: These are shares in publicly traded companies (listed on designated stock exchanges).

Invest in an RRSP with IG

Effective financial planning goes beyond simply growing investments. The IG Living Plan takes into account every aspect of your financial life including retirement planning. An IG advisor will be able to draw up a robust retirement plan that incorporates all of the benefits of an RRSP account. They’ll help you manage the risks of retirement, keep your savings intact for longer and create a retirement income plan to provide for the kind of retirement that you’ve always wanted.