RRSP

An RRSP, or Registered Retirement Savings Plan, is a Canadian tax-advantaged account intended to encourage long-term retirement savings. Contributions are deductible from taxable income in the year they are made, and assets held inside an RRSP grow on a tax-deferred basis. Withdrawals, by contrast, are taxed as ordinary income in the year they are taken, and may be subject to withholding tax.

Annual contribution room is set as 18% of earned income from the previous year, up to a maximum amount indexed by the government. Any unused room can be carried forward to future years. Contributions are commonly invested in mutual funds, GICs, or stocks within the RRSP.

By December 31 of the year you turn 71, you must convert an RRSP to a Registered Retirement Income Fund (RRIF) or purchase an annuity, or withdraw the funds in full. RRIFs require minimum annual withdrawals, which are taxed as income. You can also cash out, but that ends up in a large one-time tax event.

Other features include the Home Buyers' Plan, which lets you withdraw up to 35,000 from your RRSP to buy or build a home, repayable to the RRSP over 15 years; and the Lifelong Learning Plan, allowing withdrawals up to 20,000 total for eligible post-secondary education, repayable over 10 years. Both plans require careful repayment to preserve their tax advantages.

Spousal RRSPs allow a higher-income earner to contribute to an RRSP in a spouse's name to share retirement income, subject to attribution rules. RRSPs are one of several tools for retirement planning in Canada, and are often used alongside Tax-Free Savings Accounts.