What Is an RRSP? RSP Meaning, Contribution Rules, and How It Works

An RRSP (Registered Retirement Savings Plan) is a tax-sheltered account defined in ITA 146 that lets Canadian residents save for retirement with three tax advantages: contributions are deductible from income in the year they are made (or a future year if you defer the deduction), investment growth inside the plan is not taxed while it stays in the plan, and withdrawals are taxed as regular income in the year they come out. The idea is that you contribute during your working years when your marginal rate is high, and withdraw in retirement when your marginal rate is lower. RSP is the informal short form of the same thing, so “RSP” and “RRSP” refer to the same account.

What does RSP stand for and is it different from an RRSP?

RSP stands for Retirement Savings Plan. It is not a separate product. Banks and advisors use “RSP” as the informal abbreviation of RRSP (Registered Retirement Savings Plan). The “Registered” part means it’s registered with the CRA under ITA 146, giving it tax-sheltered treatment. When your bank offers an “RSP GIC,” the GIC is held inside a registered RRSP.

Varieties you’ll see (all the same registered plan under ITA 146):

• Group RRSP: employer-sponsored, contributions often via payroll deduction with employer matching
• Spousal RRSP: one spouse contributes, the other is the annuitant, used for income splitting in retirement
• Self-directed RRSP: you choose individual investments rather than buying a packaged product

How much can I contribute to my RRSP?

Your RRSP contribution limit is 18% of your prior-year earned income, up to the annual dollar maximum ($31,560 for 2024, $32,490 for 2025, indexed annually).

“Earned income” under ITA 146(1) includes employment, self-employment, and net rental income. It excludes investment income, pensions, and EI benefits. Key rules:

• Unused room carries forward indefinitely. Your total appears on your Notice of Assessment or My Account at canada.ca.
• Many people accumulate room over years of under-contributing, then use a lump-sum contribution to catch up in a high-income year.
• The deadline for contributions counting toward the prior tax year is 60 days after year-end (for 2025: March 1, 2026).

What happens if I over-contribute?

There is a $2,000 lifetime over-contribution buffer. Contribute up to $2,000 above your available room and no penalty applies (though the excess is not deductible). Beyond that buffer, a penalty of 1% per month applies to the excess under ITA 204.1.

If you over-contribute:

• The penalty is reported on Form T1-OVP, due within 90 days of year-end
• The fix is to withdraw the excess (taxable as income). CRA may waive the penalty if the error was reasonable and corrected promptly.
• Common triggers: job changes (two sets of RPP/RRSP deductions), pension adjustments reducing next year’s room retroactively, or miscounting carried-forward room. Check your Notice of Assessment before large contributions.

When do I have to convert or close my RRSP?

You must close your RRSP by December 31 of the year you turn 71. Three options: convert to an RRIF (Registered Retirement Income Fund), purchase a qualifying annuity, or withdraw the full balance as a lump sum. Most people convert to an RRIF because it continues tax-sheltered growth while requiring only a minimum annual withdrawal.

RRIF minimum withdrawals by age (set by ITA 146.3):

• Age 72 (first full year after mandatory conversion): 5.28%
• Age 80: 6.82%
• Age 90: 11.92%

You can withdraw more than the minimum in any year, but there is no maximum. The minimum withdrawal is taxed as income. For Canadian residents, there is no withholding on minimum RRIF payments (though tax will be owed at filing time), but withdrawals above the minimum are subject to withholding at 10% (up to $5,000), 20% ($5,001 to $15,000), or 30% (over $15,000). Non-residents are different: every RRIF payment, minimums included, takes 25% Part XIII withholding under ITA 212(1)(q). For a US resident, the Canada-US tax treaty (Article XVIII) cuts that to 15% on periodic payments, which for a RRIF means payments up to the greater of twice the year’s minimum or 10% of the fund’s value on January 1.

How are RRSP withdrawals taxed?

Withdrawals are taxed as regular income. The financial institution withholds at source: 10% up to $5,000, 20% for $5,001-$15,000, 30% over $15,000 (all provinces except Quebec, which has its own schedule). The withholding is not the final tax; the withdrawal is taxed at your marginal rate at filing time.

Exceptions and special cases:

• Home Buyers’ Plan (HBP): up to $60,000 tax-free for first-time buyers under ITA 146.01, repayable over 15 years. Missed repayments are included in income.
• Lifelong Learning Plan (LLP): up to $10,000/year ($20,000 total) for full-time education under ITA 146.02, repayable over 10 years.
• Non-residents: 25% Part XIII withholding under ITA 212(1)(l), reduced to 15% on periodic RRIF payments under the treaty. See the non-resident guide.

What’s the US equivalent of an RRSP?

The closest US equivalents are the traditional IRA under IRC 408 and the employer-sponsored 401(k) under IRC 401(k). All share the same structure: deductible contributions, tax-deferred growth, withdrawals taxed as ordinary income. The RRSP limit ($32,490 for 2025) sits between the IRA limit ($7,000) and the 401(k) limit ($23,500).

Cross-border treatment:

• Article XVIII(7) of the tax treaty lets a US citizen in Canada elect deferral on RRSP growth, and a Canadian in the US can defer on a 401(k) or IRA

• No direct rollover exists between systems, but ITA 60(j) allows a one-time transfer of a lump-sum pension distribution into an RRSP

• RRSP for non-residents after leaving Canada, what happens to your RRSP when you move away

• What happens to your 401(k) when you move to Canada?, the reverse scenario

• TFSA vs Roth IRA comparison, the tax-free account equivalents

• Rolling over a 401(k)/IRA to an RRSP under ITA 60(j), the cross-border transfer mechanism

• RRSP contributions as a US citizen in Canada, contribution room, treaty election, and which investments to hold

• Spousal RRSP for US citizens in Canada, the cross-border tax treatment of contributing to a spouse’s RRSP

• The US-Canada tax treaty explained, Article XVIII(7) deferral for retirement accounts

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.