RRSP Contribution, Deduction & Withdrawal Rules (2024)

FAQs

What is the RRSP deduction rule? ›

To be eligible for an RRSP deduction in a specific tax year, you must make contributions during that calendar year, or up to 60 days into the following year. You can contribute to your RRSP up until December 31 of the year you turn 71.

You can choose to withdraw all the funds in your RRSP as a lump sum, but the withdrawn amount will be subject to withholding tax. The withholding tax gets taken out of your withdrawal immediately and paid to the government. Additionally, this amount must be added to your income when filing your taxes.

Strategy: Deferring withdrawals as long as possible is popular for good reason. However, for large RRSPs, drawing earlier may be a better tax strategy. That's because a large RRSP means large mandatory RRIF withdrawals, and you could end up paying more tax than if you drew on it over the years.

As long as your RRSP isn't a locked-in plan, you can take money out of your RRSP any time. However, any amount you withdraw will be included as income for tax purposes. You'll also pay withholding tax on the amount you withdraw (based on the amount of the withdrawal).

An RRSP contribution limit sets a cap on the amount of money you can contribute to your RRSP in a given year. Your RRSP deduction limit determines the maximum amount of money you're allowed to claim as a tax deduction on your income tax return for contributions made to your RRSP.

Your Registered Retirement Savings Plan (RRSP) contribution is deducted from your total income for the year. Even if you have separate sources of income, your “taxable income” for the year is the total of all your income combined.

Registered Retirement Savings Plan (RRSPs) being an interest in registered plan are not subject to a deemed disposition upon emigration. An individual has the option to retain the RRSP even if they become a non-resident of Canada but will no longer accumulate RRSP contribution room.

You can withdraw from your RRSP at any time, including withdrawing small amounts or the entire balance. You can also purchase an annuity or transfer your RRSP funds into a RRIF at anytime, but you will be required to do this by the end of the year you turn 71.

The 4% rule for retirement budgeting suggests that a retiree withdraw 4% of the balance in their retirement account(s) in the first year after retiring, and then withdraw the same dollar amount, adjusted for inflation, every year thereafter.

How to calculate RRSP withdrawal? ›

Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.

Convert to an RRIF

In this scenario, a smart strategy is to convert either the full amount or a partial amount of your RRSP to an RRIF. By converting to an RRIF, you can obtain a consistent income stream. There is no tax withheld when the minimum amount is withdrawn from the RRIF.

By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations. If you're not reaching these benchmarks, it's okay. You can get on track.

Early payout will result in deductions

Regardless of how much money you've accumulated in your RRSP for your retirement, you won't be able to benefit from it in its entirety to pay for your expenses or repay your debts. For a withdrawal of less than $5,000, deductions are 19%.

Contributions to an RRSP reduce the amount of income tax individuals must pay each year, so the Canada Revenue Agency (CRA) sets an annual limit on the contribution amount each eligible taxpayer can make to RRSPs to avoid excess contributions.

A Registered Retirement Savings Plan (RRSP) is a savings plan, registered with the Canadian federal government that you can contribute to for retirement purposes. When you contribute money to a RRSP, your funds are "tax-advantaged", meaning that they're exempt from being taxed in the year you make the contribution.

You have 60 days after the end of the year to make your RRSP contribution for the previous year. Contribution deadlines for the previous three tax years were: March 1, 2023 for the 2022 tax year. March 1, 2022 for the 2021 tax year.