The Registered Retirement Savings Plan (RRSP) has been a staple of Canadian personal finance since 1957.
Introduced by the government to incentivize Canadians to proactively save for retirement, an RRSP is a registered investment account that offers tax advantages to help maximize your returns for when you’re eventually ready to leave the workplace and hang up the metaphorical gloves for good. To add icing to the cake, RRSPs can also help you fund financial milestones before retirement, like buying a new home or advancing your professional education.
RRSPs can hold various types of investments – from savings accounts to stocks – and we’ve broken down the top RRSP accounts by category below.
EQ Bank RSP Savings Account
- Interest Rate: 2.30%
- Minimum deposit: None
- Monthly fees: None
- Insurance: CDIC
- Available in Quebec: No
Please note: EQ Bank rate will be changing to 1.25%* effective May 26th, 2021
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2. The best RRSP robo advisor account (for automated investing)
$50 bonus when you open and fund your first Wealthsimple Invest account* (min. $500 initial deposit)
Various investing options and savings accounts available
- Low management account fees: 0.5% (0.4% for those investing at least $100,000)
- Completely hands-off investment experience. Invest in your RRSP and gain exposure to the stock market without lifting a finger, with pre-built portfolios and automated dividend reinvesting
- Range of portfolio options for different risk appetites and investment goals
- Easy-to-use mobile app with the ability to automate recurring deposits
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3. The best online brokerage RRSP accounts for DIY investors
Best for active/seasoned investors:
No opening or closing fees. Free account transfer. Registered account options available.
- Low commission fees: 1 cent per share (min $4.95 up to a max of $9.95 per trade)
- Both individual RRSP and Spousal RRSP accounts options available
- Ability to hold U.S. dollars and leverage Norbert’s Gambit to minimize foreign exchange fees when buying U.S. equities listed on the NYSE
- No quarterly or annual administrative fees or low activity fees
- Minimum deposit of $1,000 required
- Access to research tools and stock screeners to stay on top of the market
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Best for passive/ETF investors:
Get a $25 cash bonus and commission-free trades when you open a Wealthsimple Trade account. Plus, trade Bitcoin and Ethereum.
- Invest in your RRSP and pay absolutely no commissions on trades
- Can buy thousands of ETFs and stocks listed on the TSX and NYSE
- No quarterly/annual fees, withdrawal fees, or low activity fees
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What is a Registered Retirement Savings Plan (RRSP)?
A Registered Retirement Savings Plan (RRSP) is a government-approved account that offers tax incentives for Canadians saving or investing towards their future retirement.
There are two key benefits to investing in an RRSP:
- Contributions made towards an RRSP are eligible for a tax deduction, reducing the amount of tax a person will pay on their income which will result in a bigger refund come tax season (e.g. if you earn $80,000 but contributed $10,000 towards your RRSP in a given year, you would be taxed as if you earned $70,000)
- The investments you hold in an RRSP are tax-deferred, which means you’ll be taxed on your RRSP holdings only when you make a withdrawal. The idea being you’ll withdraw your RRSP in the future when you hit retirement and are in a lower tax bracket
RRSPs can be opened by any Canadian resident as soon as they start working, so they’re perfect for people who want to maximize their tax savings for retirement over the course of a lifetime. One thing to keep in mind, though, is that RRSPs have contribution limits. The RRSP contribution limit for 2020 is 18% of your pre-tax income or $27,230 (whichever is lower). The good news is that unused contribution room from previous years carries over.
If you want to reap all of the benefits of an RRSP in the same year, be aware of the RRSP contribution deadline for making contributions (March 1, 2021 for the contribution year of 2020). While the amount carries over each year, making contributions before the RRSP deadline will count for that year. Otherwise, tax deductions go towards the next year.
Many people tend to think that RRSPs are limited to cash savings, but that certainly isn’t your only option.
Below are some types of investments you can hold in an RRSP:
- Exchange-traded funds (ETFs)
- Foreign funds
- Guaranteed investment certificates (GICs)
- Mutual funds
Want a little more information? Check out Ratehub.ca’s RRSPs video below.
Can you withdraw your RRSP early before retirement?
As its namesake clearly suggests, the Registered Retirement Savings Plan is primarily designed to encourage Canadians to save and invest towards their future retirement. Taking out funds from an RRSP before retirement means you’ll get hit with withholding tax (hovering between 10%-30% depending on how much you withdraw) and permanently losing your RRSP contribution room. The amount you withdraw from your RRSP must also be reported as taxable income, which means you could potentially be on the hook for more taxes depending on your income bracket.
The good news is you can access your RRSP funds early with no tax penalty under two government-approved programs:
- The Home Buyers’ Plan (HBP): You can withdraw up to $35,000 (or $70,000 for a couple) from your RRSP to put towards a first-time home purchase
- The Lifelong Learning Plan (LLP): You can withdraw $10,000 per year (up to a total maximum of $20,000) to put towards advanced education for you, your spouse, or your common-partner. This is exclusively for advanced adult education
In both these cases, you’ll only be “borrowing” funds from your RRSP and will be expected to recontribute the amount you withdrew over the course of several years. For instance, in the case of the Home Buyers’ Plan, you must pay back what you borrowed fro your RRSP over the course of 15 years (roughly $2,333 per year if you borrow the maximum amount of $35,000).
If you need funds before retirement, you can consider investing in alternative registered accounts like a TFSA (which allows you to invest and withdraw funds tax-free with virtually no restrictions) or an RESP (a registered tax-advantage account for saving towards a child’s post-secondary education).
How much can I contribute to an RRSP?
An RRSP contribution limit is the total amount of money that a Canadian can contribute to an RRSP account in one year. The annual limit is either 18% of your pre-tax income from the previous year or $27,230, whichever is less. It’s important to note though, any unused contribution room from your previous years carries forward.
You can find your own RRSP contribution limit (including carried-over amounts) by logging onto the Canada Revenue Agency website (CRA).