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RRSP Contribution and Strategies

Contributing to a Registered Retirement Savings Plan (RRSP) is a great way to grow your savings in a tax-deferred environment. Whatever income earned inside the RRSP is not taxed.

You don’t have to worry if you could not contribute to RRSP during the calendar year ending on December 31. You still have two months after the year-end to make contributions and still claim the deduction in the current year.

How much you should contribute to RRSP greatly depends on your personal tax strategy and situation. It’s important to mention that contributing to RRSPs do not mean that you can avoid the taxes completely, you can only defer them.


How much you can contribute to RRSP?

You can find the information on your previous year Notice of Assessment, T2208. Alternatively, you can calculate the limit yourself using the form T1028 worksheet.

What happens when you withdraw early from your RRSP?

Withdrawal from an RRSP is subject to withholding tax deduction. Tax is withheld depending on the amount you are withdrawing ranging between 10% to 30%. Further, the amount which has been withdrawn is included in your taxable income which may push you into a higher tax bracket, resulting in an unanticipated additional tax payment at year-end.

Is it better to go for TFSA or RRSP?

Tax-Free Saving Accounts allow you to contribute up to a certain limit during the year, however, this contribution cannot be deducted from your taxable income for the year. RRSP contributions are totally opposite where you can deduct the amount from taxable income. Income earned within the TFSA is tax-sheltered. When you withdraw money from TFSA the amounts are not taxable whereas in case of RRSP amounts are included in your taxable income.

If you expect that at retirement age you are going to have lower tax brackets you should go for RRSP otherwise go for TFSA.

Why you should prefer RRSP contribution in-kind rather than cash?

As mentioned previously contributing to RRSP gives a tax deduction which helps in reducing your taxable income, ultimately, tax is reduced at your highest tax bracket rate. If you withdraw from RRSP, the amounts are going to be included in your taxable income.

Imagine a situation where you need cash for any emergency or major expense but do not have enough liquidity at that time – you are going to withdraw from RRSP, right? Good news is that you can contribute to RRSP in kind instead of cash.

CRA allows you to contribute to RRSP in-kind and allow certain assets for this purpose. These assets include; Shares of public corporations, Guaranteed investment certificates (GIC), Corporate Bonds, Mutual funds, Mortgages (real properties), Life insurance, Precious metals (Gold and Silver) or certificates for same.

How can you withdraw from RRSP without a tax penalty?

You can withdraw funds from RRSP under The Home Buyer’s Plan (HBP) and The Life Long Learning Plan without getting penalized. Both these options have their own conditions and limitations. Funds borrowed under both these plans must be returned within a certain time period in order to stay penalty-free.

How can you avoid the large tax bill at your death?

We are living in uncertain times and one should always plan for the worst. If you have an RRSP, the fair market value of it is included in income for the year of your death.  If your concern is that your beneficiaries are going to get less due to the larger tax bill, there are wealth transfer strategies available. Popular strategies include setting up trust and designating beneficiaries, permanent life insurance or even gifting to your adult children.

Can I borrow funds and invest in RRSP?

This really is a question of your specific tax situation. Unlike investment income, if you borrow funds to invest in RRSP you cannot get a deduction for the borrowing cost. You have to evaluate the opportunity cost involved in this situation.


The above information is for general purpose, every individual has its own unique tax situation and financial position, hence, the above post cannot be relied solely on to make any financial decision. Readers are advised to exercise caution while making financial decisions and must consider their own financial advisers. 

Maroof HS CPA Professional Corporation is an Ontario based accounting firm providing tax and accounting services in GTA and beyond. It provides both individual tax preparation services and corporate tax services along with complete accounting and bookkeeping services.


Fatima Aslam

Fatima Aslam

Fatima Aslam writes exclusively for Maroof HS CPA Professional Corporation and Innovation Hub on common topics related to business.

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Fatima Aslam

Fatima Aslam

Fatima Aslam writes exclusively for Maroof HS CPA Professional Corporation and Innovation Hub on common topics related to business.

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