A registered retirement savings plan (RRSP) is a tax-sheltered investment instrument that is an effective way of saving for retirement. RRSP contributions are tax deductible, and the income earned within the plan is tax deferred. Canadian individuals who have RRSP contribution room may contribute until the end of the year in which they reach the age of 71.
If you do not use all of your contribution room in a given year, the remainder may be carried forward to future years. Look for your RRSP Deduction Limit Statement on the Notice of Assessment that the Canada Revenue Agency sends you each year.
You may contribute to an RRSP for yourself or for your legal or common-law spouse.
In the case of a spousal RRSP, the account is opened for your spouse, but you receive the RRSP deduction.
Tax receipts for RRSP contributions are in the name of the contributor, not the account holder.
The Home Buyers’ Plan (HBP) allows you to make a non-taxable withdrawal of $25,000 from your RRSP to finance the purchase of your first home.
To avail yourself of the HBP, you must meet the eligibility conditions for the HBP and for an RRSP withdrawal.
For more details about the HBP, visit the Canadian Revenu Agency website.
The Lifelong Learning Plan (LLP) allows you to make a non-taxable withdrawal to finance a return to school, for yourself or for your legal or common-law spouse. Each of you may withdraw up to $10,000 a year, to a maximum of $20,000 for the period you take part in the LLP.
For more details about the LLP, visit the Canadian Revenu Agency website.
In the case of an HBP or an LLP, the amounts must be repaid to the RRSP over a specific period and some conditions apply
Contributions in excess of the limit will result in a penalty equal to 1% of the excess amount per month. However, an excess contribution of up to $2,000 is allowed (non-cumulative lifetime limit).