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, brokerages, and financial advisors use “RSP” as the informal abbreviation of RRSP (Registered Retirement Savings Plan). The “Registered” part means the plan is registered with the CRA under ITA 146, which is what gives it the tax-sheltered treatment. When your bank offers an “RSP GIC” or an “RSP savings account,” it means the GIC or savings account is held inside a registered RRSP. The legislation, your Notice of Assessment, and your tax return all use the full name RRSP.

You will also see “group RRSP” (an employer-sponsored arrangement where contributions are often deducted from payroll and the employer may match), “spousal RRSP” (an RRSP where one spouse contributes but the other spouse is the annuitant, used for income splitting in retirement), and “self-directed RRSP” (where you choose the individual investments rather than buying a packaged product). These are all varieties of the same registered plan under ITA 146, not different account types.

How much can I contribute to my RRSP?

Your RRSP contribution limit (also called “RRSP deduction limit” or “RRSP room”) is calculated as 18% of your earned income from the prior year, up to the annual dollar maximum. The dollar maximum is indexed to inflation: $31,560 for 2024, $32,490 for 2025, and announced each fall for the following year.

“Earned income” for RRSP purposes is defined in ITA 146(1) and includes employment income, self-employment income (net of expenses), rental income (net of expenses), and certain other amounts. It does not include investment income (dividends, interest, capital gains), pension income, or Employment Insurance benefits. So if you earned $80,000 in employment income in 2024, your RRSP room for 2025 is 18% x $80,000 = $14,400.

Unused contribution room carries forward indefinitely. If you could contribute $14,400 but only contributed $5,000, the remaining $9,400 carries forward to next year and adds to your new room. Your total accumulated RRSP room appears on your Notice of Assessment (or you can check it on My Account at canada.ca). Many people accumulate substantial unused room over years of under-contributing, and then use a lump-sum contribution to catch up and generate a large deduction in a high-income year.

The deadline for contributions that count toward the prior tax year is 60 days after the end of that year. For the 2025 tax year, you can contribute until March 1, 2026 (March 2 in a leap year) and still deduct the contribution on your 2025 return.

What happens if I over-contribute?

There is a $2,000 lifetime over-contribution buffer. If you contribute up to $2,000 more than your available RRSP room, no penalty applies. The over-contribution is not deductible, but it is not penalized. Once you exceed the buffer, a penalty of 1% per month applies to the excess amount under ITA 204.1.

The penalty is reported on Form T1-OVP (Individual Tax Return for RRSP, PRPP and SPP Excess Contributions) and is due within 90 days of the end of the year. If you discover an over-contribution, the fix is to withdraw the excess amount. The withdrawal is taxable as income, but you can request the CRA waive the penalty if the over-contribution was a reasonable error and you corrected it promptly.

Over-contributions happen most often when someone changes jobs (two sets of RPP/RRSP deductions in one year), receives a pension adjustment that reduces next year’s room retroactively, or miscounts carried-forward room. Check your Notice of Assessment before making 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. At that point, you have three options: convert it to an RRIF (Registered Retirement Income Fund), purchase a qualifying annuity, or withdraw the entire balance as a lump sum. Most people convert to an RRIF because it continues the tax-sheltered growth while requiring only a minimum annual withdrawal.

The RRIF minimum withdrawal is a percentage of the account value at the beginning of each year, and the percentage increases with age. At 72 (the first full year after mandatory conversion), the minimum is 5.28%. At 80 it is 6.82%. At 90 it is 11.92%. The minimums are set by ITA 146.3 and increase each year to ensure the account is gradually drawn down.

You can withdraw more than the minimum in any year, but there is no maximum. The minimum withdrawal is taxed as income. 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) for Canadian residents, and 25% for non-residents (reduced to 15% on periodic payments under the Canada-US tax treaty, Article XVIII).

How are RRSP withdrawals taxed?

Withdrawals from an RRSP are taxed as regular income in the year of withdrawal. The financial institution withholds tax at source: 10% for withdrawals up to $5,000, 20% for $5,001 to $15,000, and 30% for over $15,000 (these rates apply in all provinces except Quebec, which has its own withholding schedule). The withholding is not the final tax. The withdrawal is added to your other income for the year and taxed at your marginal rate, with the withholding applied as a credit. If your marginal rate is higher than the withholding rate, you owe the difference at filing time.

Two programs allow RRSP withdrawals without immediate taxation. The Home Buyers’ Plan (HBP) under ITA 146.01 lets first-time home buyers withdraw up to $60,000 (increased from $35,000 in Budget 2024) tax-free, repayable over 15 years. The Lifelong Learning Plan (LLP) under ITA 146.02 lets you withdraw up to $10,000 per year (maximum $20,000 total) for full-time education, repayable over 10 years. In both cases, if you miss a scheduled repayment, that amount is included in your income for the year.

For non-residents who left Canada, RRSP withdrawals are subject to 25% Part XIII withholding under ITA 212(1)(l), reduced to 15% on periodic RRIF payments under the tax treaty. The RRSP for non-residents guide covers the full mechanics.

What is the US equivalent of an RRSP?

The closest US equivalent is the traditional IRA (Individual Retirement Account) under IRC 408, or the employer-sponsored 401(k) under IRC 401(k). All three share the same basic structure: contributions are tax-deductible (subject to income limits for the IRA), growth is tax-deferred, and withdrawals are taxed as ordinary income. The differences are in the details: the RRSP limit ($32,490 for 2025) sits between the IRA limit ($7,000 for 2025, or $8,000 if 50+) and the 401(k) limit ($23,500 for 2025). The RRSP has no income phase-out on deductibility (unless you also have a registered pension plan, which triggers a pension adjustment), while the traditional IRA deduction phases out if you are covered by a workplace plan and your income exceeds certain thresholds.

For cross-border purposes, the Canada-US tax treaty treats each country’s retirement accounts symmetrically. Article XVIII(7) allows a US citizen living in Canada to elect deferral on RRSP growth (the US does not tax it until withdrawal, matching Canada’s treatment). The same article allows a Canadian in the US to elect deferral on a 401(k) or IRA. There is no direct rollover between the systems (you cannot transfer an RRSP to a 401(k) or vice versa without triggering tax), but ITA 60(j) allows a one-time transfer of a lump-sum pension distribution into an RRSP under specific conditions.

• 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
• 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.