The RRSP (Registered Retirement Savings Plan) is a tax tool that allows you to reduce your tax burden while saving for retirement. With an RRSP, you can accumulate retirement savings while deferring tax on these funds until withdrawal.
Distinction between contribution room and deductible contributions:
Contribution Room:
Contribution room refers to the amounts you can contribute to your RRSP or your spouse’s RRSP, based on your income, with the ability to carry forward unused room.
Deductible Contributions:
Deductible contributions represent the amounts you can deduct from your tax return, reducing your taxable income. They are listed on line 20800 of your tax return.
Spousal RRSP:
You can contribute to your spouse’s RRSP, but the contribution amount depends on your own contribution room, not your spouse’s. This option is available as long as both spouses are under the age of 71.
Home Buyers’ Plan (HBP):
You can withdraw funds from your RRSP to buy or build a qualifying first home, either for yourself or for a disabled dependent. A withdrawal limit of $35,000 applies. A T1036 form must be completed for an HBP withdrawal.
Lifelong Learning Plan (LLP):
Funds can be withdrawn from your RRSP for lifelong learning needs. You have 5 years to start repaying the withdrawal, with a maximum repayment period of 10 years. The maximum withdrawal is $20,000 total, with a limit of $10,000 per year.
After age 71:
You must stop contributing to your RRSP or your spouse’s RRSP by your 71st birthday. The RRSP can be converted into an annuity or transferred into a RRIF (Registered Retirement Income Fund). If your spouse is younger, you can continue contributing to their RRSP after turning 71.
Tax on RRSP:
Starting at age 71, the RRSP begins paying taxable annuities. Tax on these annuities is based on your tax bracket. Withdrawals before age 71 are taxed according to the current tax bracket, and early withdrawals may incur penalties.