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    RRSP Calculator

    This Page’s Content Was Last Updated: January, 2025

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    At A Glance

    • The 2024 RRSP (Registered Retirement Savings Plan) contribution limit is the lower of either $31,560 or 18% of your pre-tax earnings from the previous year. After February 28, 2025, the amount will switch to the 2025 limit of $32,490.
    • RRSP contributions are advisable if you're in peak earning years. Otherwise, TFSA contributions are often better.
    • Withdrawals from your RRSP are subject to income tax.
    • The First Time Home Buyer's Plan is a great way to finance your home down payment using your RRSP savings.

    RRSP Contribution Limit

    The RRSP contribution limit is the maximum amount you can contribute to your Registered Retirement Savings Plan annually. The government sets the limit, and it changes every year.

    Canada’s pension system includes the Canada Pension Plan (CPP), which supports everyone who has worked in Canada, and Old Age Security, which supports everyone who has resided in Canada. Unfortunately, the payments from these programs are often insufficient to maintain an acceptable standard of living in retirement. Consequently, many Canadians use an RRSP account to save for their retirement.

    For the 2024 tax year, your RRSP contribution limit is the lower of 18% of your earned income pre-tax from the previous year and $31,560. This maximum was $30,780 for the 2023 tax year. Any contributions to an employer group RRSP will be calculated within your limit. You must make the contributions within 60 days after the year-end, meaning your 2023 contributions are due by February 28, 2025.
    If you don’t contribute the total permitted amount to your RRSP each year, you can carry forward the unused contribution element (called a contribution room) to future years. It means that you can contribute more in the coming years. However, there are costs associated with overcontribution. There is a $2,000 buffer, which means you won’t be charged for extra contributions within this window. If you exceed the $2,000 limit, there is a 1% monthly fee. You cannot include fee-free contributions within the buffer in tax deductions.
    Spousal RRSP Contribution
    If one spouse has a higher income than their partner, they can contribute to a spousal RRSP. This allows the higher-income spouse to benefit from the tax deductions on their partner’s contributions. The spousal RRSP limit is the same as the regular contribution limit, so 18% of your income or $31,560, whichever is the lower.
    To contribute to a spousal RRSP, you must have a contribution room in your account, and the receiving spouse must also have a contribution room in their account. You can’t contribute more than your spouse’s contribution limit.

    Contributing to a TFSA or RRSP

    It’s generally advisable to prioritize TFSA (Tax-free Savings Account) contributions if you are before your peak earning years. Individuals in their 20s and 30s should invest in a TFSA in preference to an RRSP because the tax-free growth in a TFSA allows the investment to grow without taxation restrictions. However, switching to RRSP contributions in your peak earning years will help your tax status; the contributions lower your taxable income, so you’ll pay less tax at a time when your income (and tax bracket) is at its highest. Remember, though that the TFSA contribution limit is minor; in 2024, it was only $7,000 compared to $31,560 for the RRSP. If you are young and have maxed out your TFSA contribution room, then RRSP contributions are a great next step.

    You should note that you will need to pay income tax on withdrawals from RRSP (unlike a TFSA). Consequently, it’s best to wait until retirement to make RRSP withdrawals when your income tax is lower, and the withdrawals won’t push you into a higher tax bracket.

    First Time Home Buyer RRSP

    Although TRSA contributions are advisable for younger individuals, some exceptions exist. The RRSP home buyers’ plan allows you to quickly save up for a mortgage down payment. You can receive income tax credits for your RRSP contributions, which can be used to add towards your down payment savings.

    The program allows you to withdraw up to $120,000 per couple ($60,000 per individual) from your RRSP to contribute to your mortgage down payment. The withdrawals are tax-free but must be paid back to your RRSP within 20 years.
    You can only participate in the program if you haven’t owned a home occupied as your primary residence within the past four years. You must intend to occupy your new home as your principal residence within one year after buying it.

    RRSP Withdrawal Rules

    You can withdraw from your RRSP before you retire, but withdrawals will be subject to withholding taxes. Typically, many retired Canadians convert their RRSP to an RRIF (Registered Retirement Income Fund) once they finish work. This is a tax-free switch and allows you to then withdraw your contributions without withholding taxes. However, after you switch to an RRIF, you cannot make any more contributions and must withdraw a minimum amount each year. Additionally, you must pay income tax on any withdrawals.

    You must switch to an RRIF before the end of the year you turn 71. However, you can switch as early as the year you turn 55, although most experts advise against an early switch because you’ll no longer be eligible to make contributions and could run out of money in retirement.
    If you choose to withdraw from your RRSP before converting to an RRIF, your withdrawals will be subject to withholding taxes. Additionally, you will not get this contribution room back.
    There are two less popular options as an alternative to converting your RRSP into an RRIF:
    • Receive a lump-sum payment from your RRSP at retirement. The whole amount is liquidated and transferred to your bank account. However, this will be counted as income and could result in a significant tax bill.
    • You can buy an annuity that pays a set amount throughout retirement. However, annuity interest rates are generally lower than the amount you would receive from holding investments in an RRIF.

    RRSP Withholding Tax

    Withdrawing money from your RRSP results in an income tax liability. Your financial institution must withhold part of the money you are withdrawing to account for tax on this income element, hence the name ‘withholding taxes.’ Your bank is bound to pay this directly to the CRA. The withholding amount doesn’t operate within a bracket system, meaning you will pay the specified tax rate on the withdrawal. Beware of making smaller multiple withdrawals to ‘cheat’ the system and avoid a higher tax rate. Your bank can spot this behavior and may calculate all your smaller withdrawals in aggregate as one large one.
    The withholding amount varies depending on how much you withdraw. For most of Canada, the withholding rate is:
    Withdrawal Amount
    Withholding Rate
    $0 to $5,000

    10%

    $5,001 to $15,000

    20%

    $15,000+
    30%
    However, Quebec has a lower withholding rate:
    Withdrawal Amount
    Withholding Rate
    $0 to $5,000

    5%

    $5,001 to $15,000
    10%
    $15,000+
    15%

    Above the withholding tax, your withdrawals are included in your income tax calculation. Depending on your investment, there may also be a selling fee. If you’re in a financially tight spot, then a Home Equity Line of Credit (HELOC) is usually a much cheaper option. Always take qualified financial advice before deciding to withdraw from your RRSP.

    The Bottom Line

    RRSPs are one of the best ways to invest money for your retirement. When you contribute, your savings will grow tax-free until you withdraw them. Additionally, you will benefit from lowering your income tax liability when you contribute. And when you’re enjoying the golden years with a lower personal income, you won’t need to worry about higher income tax on those withdrawals.

    Disclaimer:

    • Any analysis or commentary reflects the opinions of https://thelocalbroker.ca/ analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
    • The calculators and content on this page are for general information only. https://thelocalbroker.ca/ does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
    • Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
    • Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.

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