Key takeaways:

  • RRSPs are registered savings accounts that let you save for your retirement throughout your working life.
  • Contributions are tax-deductible, so you can reduce the amount of taxable income you owe.
  • RRSPs can hold a variety of different savings or investing options, such as mutual funds, cash or GICs.
  • In addition to retirement savings, RRSPs can be used to finance your higher education or buy a home.
  • The amount you can contribute annually depends on your income from the previous year.

It’s never too soon to start thinking about your future – and feeling like you are ready for it is the best feeling ever. Knowing you can support yourself and your family can help you to feel empowered and in control of your money.

Opening a Registered Retirement Savings Plan (RRSP) is just one way to help you to enjoy the present, knowing you’re prepared for years to come.

Read on to discover what an RRSP is, how an RRSP works and how to withdraw from it, along with what RRSP contributions are and what they can be used for.

What is an RRSP? 

RRSP stands for Registered Retirement Savings Plan. As the name suggests, it’s a tax-advantaged savings program for retirement.

It’s registered with the Canadian government and the money you put in isn’t taxed until you withdraw it. 

How does an RRSP work?

An RRSP is a saving plan that you can contribute to throughout your working life. It can hold a variety of different savings and investing options, from cash to Guaranteed Investment Certificates (GICs) to mutual funds.

Contributions into an RRSP are tax-deductible, meaning the money you pay into your RRSP is taken away from your taxable annual income amount, which then reduces the tax you pay on your current income.

Who can open an RRSP?

Anyone under the age of 71 can open an RRSP. This is as long as you are a Canadian resident, have a valid permanent social insurance number and have filed an income tax return in previous years. 

What can an RRSP be used for?

Although RRSPs are specifically designed to save for retirement, there are some other ways you could use those savings, from education to long-term saving goals to even buying a home. Here are just a few ways they can be used.


The most common use of the RRSP is as part of a retirement plan as it’s designed to help you get ready for your retirement. These saving will come in handy combined with other government retirement benefits. 

Higher education 

If you’re considering going back to school, an RRSP could help you with some of the financial strain. Withdrawals from your RRSP through the Lifelong Learning Plan can be put towards paying the costs of full-time education and training. You can withdraw up to $10,000 a year, and these funds are not taxed – as long as they’re paid back according to the requirements. Learn more on that here

Buying a home 

Buying your first home is a huge life milestone and one that requires careful consideration. If you use your RRSP to save for your first home, you can take out up to $60,000 under the Home Buyers' Plan (HBP).

However, it’s very important to note that you understand the Canada Revenue Agency (CRA) HBP criteria and follow the HBP repayment schedule. You have 15 years to repay the funds into your RRSP.

Long-term saving

An RRSP is a useful saving tool to help you reach your long-term goals. If your money is not locked into your RRSP, you may be able withdraw funds at any time. This isn’t generally recommended though, as the money will be subject to taxes.

What are RRSP contributions?

RRSP contributions are the money that you deposit into your retirement saving plan throughout your working life.

The amount that you can put into your account each year is capped at a maximum contribution amount. This is called an RRSP contribution limit – find your limit using the official MyCRA app.

What does RRSP contribution limit mean?

Your RRSP deduction, or your contribution limit, is the highest amount you are allowed to deposit into your own, or your spouse’s, RRSP in a year.  Remember to check your contribution limit with the Canada Revenue Agency before making a contribution.

You are allowed to contribute up to 18% of the income you recorded the previous year, up to a maximum of $30,780 for 2023, plus any unused contribution room from previous years.

Have you missed out on making an RRSP contribution before? If you don’t use up your maximum yearly contributions in previous years, you can carry this unused contribution room forward and use it when your income may be higher.

How to withdraw from an RRSP

You can withdraw money from your RRSP at any time. However, it’s important to know that you’ll have to pay tax on the money you withdraw.

When your RRSP reaches full growth, at the end of the calendar year when you turn 71, you have two options for RRSP withdrawal:

1.    Withdraw funds in one lump sum – This is the option if you want access to all the money at once. If you take a lump sum, you will pay withholding tax.

2.    Convert the funds to a RRIF – When you retire, you can transfer the money into a Registered Retirement Income Fund where you’ll receive regular income from your RRIF. But it’s important to remember that you’re required to withdraw a minimum amount each year.

How much RRSP should I have at 40?

There is no one perfect number that your RRSP needs to be at when you are 40. This really depends on your financial goals and how your investments are working together to help you reach them. Your Scotia advisor can help you work on a plan that will work for you. 

What happens if you over contribute to your RRSP?

If you overcontribute to your RRSP, there may be penalties. Usually, you’ll need to pay 1% tax each month on contributions that exceed your maximum RRSP contribution limit by over $2,000.

Planning for your future

Now you know more about how an RRSP works and why it might be right for you. An RRSP is just one great way to start preparing for your future, while growing your savings in a tax-advantaged plan.

If you want help with your retirement planning, your Scotia advisor can help you create a plan that’s right for your future.

Ready to get your finances on track for your future? Come in and speak to a Scotia advisor today