What even are these accounts: RRSPs

You have probably heard of an RRSP (or maybe some other acronym like RSP) before and probably got even more confused when you tried to understand what it even meant. Well, I'm here to hopefully help simplify it for you.

RRSP

This stands for Registered Retirement Savings Plan; which you guessed correctly is mainly (I'll explain why it's mainly and not always) for retirement. This account allows you to deposit money into it that you will likely only be taking out (withdrawing) to help fund your retirement. The benefit of putting money (depositing) here as opposed to another investment account is that you will receive an income tax deduction when you deposit. This means that if you earn $50,000 in a year and put $5,000 into your RRSP you will only be taxed as if you earned $45,000. You will eventually have to pay income taxes on this money but only when you are withdrawing it (taking it out). Which if done correctly, will result in less income taxes paid throughout your lifetime because you will be withdrawing when you are earning less (because you will be retired) so your marginal tax rate (the percentage of taxes you pay on the next dollar that you earn) will be lower. You can contribute up to 18% of your income every year and this dollar amount is cumulative (if you don't use your contribution room one year it carries forward to the next year). For example, if I earn $50,000 this year I can contribute up to $9,000 this year however if I contribute nothing and next year I earn $55,000 that means I can contribute $9,900 (18% of this years income) + $9,000 (last years unused contribution space) = $18,900. You can always check your contribution room on your "MyCRA" account or on your most recent Notice of Assessment (NOA).

Although the funds put into this account are typically only used in retirement you can withdraw from the account at anytime; however, by doing so you will need to pay income taxes on whatever you withdraw. For example, if you earned $50,000 this year and decided to take $5,000 out of your RRSP you would be paying income taxes as if you had earned $55,000. There are however a couple exceptions to this; one is called the Home Buyers Plan (HBP) and the other is called the Lifelong Learning Plan (LLP).

The Home Buyers Plan (HBP) allows you to withdraw up to $60,000 (as of 2025 - please click

here to see any updated rules) in a given year to put towards the downpayment on your first home. You have 15 years starting the second year after your initial withdrawal to put the money back into your RRSP and you must put a minimum of 1/15th every year to avoid paying income taxes on the withdrawal; if you miss depositing one year you are taxed on 1/15th of your withdrawal amount. For example, lets say I withdrew $60,000 in 2025 for a home I was buying in 2025 and I put the withdrawal towards my downpayment I would need to repay a minimum of $4,000/year starting in 2027. This information is accurate as of June 2025; for updated rules please click here (CRA's website).

The Lifelong Learning Plan (LLP) allows you to withdraw $10,000 in a given calendar year to help fund full-time education for you, a spouse, or common-law partner. The lifetime withdrawal limit is $20,000 and you must complete your last withdrawal by end of January of the fourth year following your first withdrawal. For example if I took money out of my RRSP in August of 2025 to pay for my tuition the maximum I could withdraw would be $10,000 and my last withdrawal would have to be before January 31st, 2029. Similarly to the HBP you would have to repay the LLP and the rules are as follows:

• You have 10 years to repay the amount you withdrew (you must repay a minimum of 1/10th every year). If you don't repay the minimum (1/10th) in any given year you will have to pay income tax on that amount.

• You must start making repayments in the 5th year following your first withdrawal, or once you are no longer a student (you are given a one year grace period after graduating), whichever comes first.

For example if I withdrew $10,000 in 2025 and another $10,000 in 2026 and was a student until April 2027 my total withdrawal would've been $20,000 which means the minimum I would have to repay every year would be $2,000. These repayments would have to start in 2029 because my last year in school was 2027 and then I have a one year grace period (2028). For up to date information please click here (CRA link to all of the rules).

The information presented above is accurate as of June 2025; for updated rules please click here (CRA's website).