Hello everyone,
Have you contributed to your Registered Retirement Savings Plan (RRSP) for the 2025 tax year? It is not too late to do so.
The RRSP is a program governed by the federal government that allows you to accumulate funds for your retirement while saving on taxes. In general, any income accumulated in the plan is exempt from tax during the period in which the funds remain in the plan. In addition, you can deduct the amount of your RRSP contributions from your annual taxable income.
For many, the RRSP represents an important source of retirement income. By investing in your retirement savings plan, you are investing in your future. You have until March 2, 2026 to do so.
What is the maximum amount?
The contribution limit for the 2025 tax year is $32,490. However, the amount to which you are entitled cannot exceed 18% of your earned income (excluding pension and investment income) during the previous year. For example, if you earned $80,000 in 2024, your maximum contribution amount will be $14,400 for 2025.
If you are a member of a workplace pension plan, your contribution room may be reduced by a pension adjustment. If you have not contributed the maximum in previous years, you likely have unused contribution room carried forward, increasing your available limit.
To find out how much you can invest this year, you can either consult page 3 of your last federal Notice of Assessment, access My Account on the Canada Revenue Agency (CRA) website, or call the CRA directly.
A deduction on your tax return
One of the advantages of the RRSP is that it allows you to grow your money sheltered from tax. Also, it is possible for you to deduct the amount of your contribution from your total income and thus reduce your taxable income.
Funds invested in an RRSP become taxable upon withdrawal. That is why it is recommended to withdraw funds from your RRSP only once you retire, when your marginal tax rate is generally lower.
Planning to buy your first home
If you are planning to buy your first home, the RRSP can become interesting. The Home Buyers’ Plan (HBP) allows you to use your RRSP as a down payment, without paying taxes at the time of withdrawal.
The maximum withdrawal that can be made from the RRSP under the HBP is now $60,000. To be eligible, you must be considered a first-time homebuyer and become the owner of this primary residence before October 1 of the year following the year of your withdrawal.
Repayment terms
The HBP is not a permanent withdrawal — it is essentially a loan to yourself.
Withdrawn amounts must be repaid over a maximum of 15 years.
Repayments generally begin two years after the year of withdrawal.
The minimum annual repayment is 1/15 of the amount withdrawn.
Any required repayment not made in a given year will be added to your taxable income.
When properly structured, the HBP can be an effective strategy. However, future repayment obligations should be carefully considered within your long-term savings plan.
Going back to school
If you want to go back to school, there is a program called the Lifelong Learning Plan (LLP). Similar to the HBP, it allows you to withdraw funds, without taxation, from your RRSPs in order to finance your training, your studies, or those of your spouse.
• Maximum amount that can be withdrawn: $10,000 per year
• Total limit: $20,000
To benefit from the LLP, you or your spouse must be enrolled full-time in an eligible training program.
Repayment terms
Like the HBP, the LLP is not a permanent withdrawal.
Amounts withdrawn must be repaid over a maximum of 10 years.
Repayments generally begin five years after the first withdrawal.
The minimum annual repayment equals 1/10 of the total withdrawn.
Any unpaid required amount will be added to your taxable income.
The LLP can support career transitions and professional development, but repayment obligations should be factored into your long-term financial planning.
RRSP VS TFSA
Since the introduction of the TFSA in 2009, many people wonder which vehicle between the RRSP and the TFSA should be prioritized. Several factors can come into play, requiring a rigorous analysis before making a contribution to one or the other of the two plans.
• If your marginal tax rate in retirement is lower than your marginal tax rate at the time of contribution, you should opt for the RRSP.
• The TFSA is more flexible, as withdrawals are not taxable and contribution room is recoverable the following year.
• An RRSP contribution reduces net family income, making you eligible for certain tax credits.
If you plan to use your funds for short- or medium-term projects, it is better to prioritize the TFSA. However, if funds are intended for retirement, the RRSP remains a relevant choice, especially if your current marginal tax rate is higher than what is expected in retirement.
Note: the TFSA contribution limit for 2026 is $7,000, and unused contribution room from previous years is carried forward automatically.
Lower your annual income to benefit from various tax credits
If you have received a salary increase, it is possible that you will lose certain federal or provincial tax credits.
For example, an increase of $1,000 in your annual income could cause you to lose almost the same amount in tax credits. It may therefore be advantageous to invest this surplus in your RRSP in order to lower your annual income and thus benefit from these programs or, at the very least, not lose them.
The spousal RRSP
A spousal RRSP is an effective tax-planning strategy when spouses have unequal incomes.
You contribute using your own RRSP contribution room, receive the tax deduction, but the assets belong to your spouse.
Why this strategy can be beneficial
Helps equalize retirement income
Reduces overall household tax over time
Mitigates Old Age Security (OAS) clawback risk
May preserve certain income-tested credits or benefits
Important rule
If a withdrawal occurs within three years of contribution, the contributing spouse will be taxed (attribution rule).
Additional notes:
Funds cannot be transferred from an individual RRSP into a spousal RRSP.
Contributions are permitted until December 31 of the year the contributor turns 71.
Borrowing to contribute
It is possible to borrow to invest in an RRSP, a strategy called leverage. This option must be evaluated with caution, because interest on the loan is not tax-deductible.
It is often more advantageous to put a savings strategy in place to contribute to your RRSP rather than borrowing. However, if the loan is repaid quickly, the immediate tax savings may offset the cost of interest.
Excess contributions and penalties
If you contribute more than your maximum deductible amount to your RRSP, you could be subject to penalties. You nevertheless benefit from an over-contribution margin of $2,000 without penalty.
However, beyond this amount, a tax of 1% per month will apply to the excess, as long as it is not withdrawn or until you have accumulated enough new contribution room to absorb it. It is therefore crucial to verify your contribution limit before making a deposit into your RRSP.
Eligible investment options in an RRSP
Funds invested in your RRSP can be placed in several investment vehicles based on your risk profile and retirement goals. Here are the eligible investments:
• Mutual funds
• Individual stocks (publicly traded securities)
• Government or corporate bonds
• Guaranteed Investment Certificates (GICs)
• Income trusts and Exchange-Traded Funds (ETFs)
• Annuity contracts
Optimizing your RRSP involves proper diversification of your investments. Consulting a financial advisor may be a wise decision to align your investments with your retirement horizon and risk tolerance.
Early withdrawals and taxation of withdrawals
Withdrawing funds from your RRSP before retirement can have significant tax consequences. Any withdrawal will be added to your taxable income for the current year, which could push you into a higher tax bracket.
In addition, withholding tax at source will automatically be deducted by your financial institution based on the amount withdrawn:
19% total (5% federal + 14% Quebec) on withdrawals up to $5,000
24% total (10% federal + 14% Quebec) on withdrawals between $5,001 and $15,000
29% total (15% federal + 14% Quebec) on withdrawals over $15,000
If your actual tax rate is higher than the withholding amount, you may have to pay additional tax when filing your tax return. It is therefore recommended not to withdraw funds from your RRSP before retirement, except in specific cases such as purchasing a first home through the HBP or going back to school with the LLP.
Income splitting after age 65
Starting at age 65, income from a Registered Retirement Income Fund (RRIF) or an annuity from an RRSP can be split with your spouse. This mechanism helps balance the couple’s taxable income and thus reduce overall tax.
For example, if one spouse receives high pension income and the other has little or no income, transferring up to 50% of this income to the other spouse can allow for a lower tax rate and prevent the loss of certain low-income tax credits.
Deferring a contribution for a future deduction
If your current income is lower than what it will be in a few years (for example, if you are at the start of your career), you can contribute to your RRSP without immediately claiming the tax deduction. You will then have the possibility of deferring this deduction to a year when your income is higher, which will maximize your tax savings.
This strategy is particularly useful for those who expect a significant salary increase in the coming years or who anticipate variable income.
RRSP contributions and conversion after age 71
If you turn 71 in 2025, it is essential to know that you can still contribute to your RRSP until December 31, 2025. After this date, you will have to convert your RRSP into a Registered Retirement Income Fund (RRIF) or an annuity.
If you still have employment income in 2025, a good strategy is to make one last RRSP contribution before conversion, even without immediately claiming the tax deduction. This will allow you to use this deduction in a future year when your tax rate may be higher.
How the RRIF works
Unlike an RRSP, a RRIF does not generate new contribution room. It is designed for withdrawals.
Mandatory withdrawals
Beginning the year after conversion (age 72 if converted at 71), you must withdraw a minimum amount annually.
The minimum percentage is determined by a government formula based on age.
For example, the minimum withdrawal at age 72 is 5.40%.
The percentage increases each year thereafter.
All RRIF withdrawals are fully taxable.
Important considerations:
The mandatory minimum withdrawal is generally not subject to withholding tax (amounts above the minimum are).
RRIF withdrawals do not create new RRSP contribution room.
You may elect to base the minimum withdrawal on the age of a younger spouse, reducing required withdrawals and extending tax-deferred growth.
The FHSA: an alternative to the HBP for home purchases
Since April 2023, the First Home Savings Account (FHSA) is an interesting alternative to the Home Buyers’ Plan (HBP).
The FHSA combines the advantages of the RRSP and the TFSA:
Tax-deductible contributions, like an RRSP
Tax-free withdrawals for the purchase of a first home, like a TFSA
No repayment required, unlike the HBP
You can contribute up to $8,000 per year, with a lifetime limit of $40,000. If you do not contribute the maximum amount in one year, you can carry forward the unused room to the following year.
Unlike the HBP, where the funds withdrawn must be repaid over 15 years, FHSA withdrawals are final and do not affect your future contribution room. This account is therefore an ideal option for those planning to buy a property within 5 to 10 years.
Maximize your RRSP with our experts
The RRSP is a powerful tool for building tax-sheltered capital and optimizing your financial planning.
Our experts are available to support you in managing your investments and to propose a strategy tailored to your goals. Whether you want to optimize your tax situation, prepare for retirement, or finance a medium-term project, we are here to advise you.
Contact us today to benefit from personalized support.
