The main goal of this fund is to defer tax payments until you’re older, when your tax bracket is lower.
Each year, your deduction limit is increased by 18% of your earned income or contribution limit, whichever is lower.
You can contribute up until Dec 31st of the year when you turn 71.
There is also a spousal RRSP, which both partners contribute to. This helps to split the retirement income equally between the two, to potentially lower taxes.
An RRSP can be converted to an Registered Retirement Income Fund or an annuity to get regular payments.
Optional Withdrawals
You can withdraw a portion of it:
- for your first home downpayment under the Home Buyer’s Plan
- to pay education costs for you or your spouse under the Lifelong Learning Plan
In both these cases, you won’t pay additional taxes so long as they are repaid within a given timeframe.
Deduction vs Contribution Limit
RRSP Contribution Limit
The maximum amount of money you can contribute to an RRSP
RRSP Deduction Limit
The maximum amount of money contributed to your RRSP that you can claim as a tax deduction on your income tax return.
These two numbers are generally the same, unless you contribute to an RRSP but decided not to deduct your taxable income with it.