Registered Retirement Savings Plan Contribution (RRSP Contribution)

What is a Registered Retirement Savings Plan contribution (RRSP contribution)?

Registered Retirement Savings Plan contributions are assets invested in an RRSP. An RRSP is a retirement savings vehicle for employees and the self-employed in Canada. These contributions can be made at any time and in any amount up to the individual’s maximum contribution during the year.

If a contributor does not make the maximum allowable contribution, the balance of unused contribution room from 1991 onward will be rolled over indefinitely. This allows people to make up for years in which they did not increase their allowable RRSP contributions.

Understanding Registered Retirement Savings Plan Contributions (RRSP Contributions)

An RRSP is an investment vehicle used to save for retirement where pre-tax funds are placed in the RRSP and grow tax-free until withdrawal, at which time they are taxed at a marginal rate. Registered retirement savings plans have many features in common with 401(k) plans in the United States, but also some key differences. Because RSP contributions can be made at any time, are tax-deductible, and can be made in cash or in-kind, they represent a tremendous opportunity to reduce income taxes.

Registered Retirement Savings Plans were created in 1957 as part of the Canadian Retirement Savings Plan Income tax law. They are registered with the Canadian government and overseen by the Canada Revenue Agency (CRA), which sets the rules governing annual contribution limits, timing of contributions, and permissible assets.

RRSP Contribution Limits

The RRSP contribution limit for 2024 is 18% of earned income reported on an individual’s 2023 tax return, up to a maximum of $31,560. According to the Canada Revenue AgencyThis number rises to $32,490 in 2025.

It’s possible to contribute more, but you’ll have to pay a 1% tax penalty per month on contributions that exceed your RRSP deduction limit by more than $2,000.

Registered Retirement Savings Plan Benefits

Besides helping Canadians build their retirement nest egg, there are some benefits to registered retirement savings plans.

Tax advantages

RRSPs have two main tax advantages: Contributors can deduct contributions against their income. For example, if a contributor’s tax rate is 40%, every $100 invested in an RRSP will save that person $40 in taxes, up to their contribution limit. And the growth of RRSP investments is tax-sheltered. Unlike non-RRSP investments, the proceeds are exempt from any capital gains tax, dividend tax, or income tax. As a result, investments under regional reconstruction plans accumulate at a pre-tax rate.

In effect, RRSP contributors delay paying taxes until retirement, when their marginal tax rate is lower than it was during their working years. The Government of Canada introduced this tax deferral to Canadians to encourage saving for retirement, which is designed to reduce residents’ reliance on the Canada Pension Plan to fund retirement.

Registered Pension Plans (RPPs) are launched by employers with participating employee members. When an employee leaves the company, RPP funds can move into a closed account, a type of RRSP.

Distributions or withdrawals

An RRSP account holder may withdraw funds or investments at any age. Any amount is included as taxable income in the year of withdrawal unless the funds are used to purchase or build a home or for education (with certain conditions).

Bottom line

Registered Retirement Savings Plan contributions are assets invested in an RRSP. An RRSP is a retirement savings vehicle for employees and the self-employed in Canada.