A glass jar with coins and Canadian currency with the label RRSP.AnthonyRosenberg/iStockPhoto / Getty Images
Last weekend I got together with a bunch of guys – some older, some younger – for some indoor golf. We had great food and conversation. I noticed that the younger guys all talked about sports and money. The older guys talked about medications and money. The guys in the middle talked about money and medications that allow them to play more sports. Clearly, money was the common denominator.
The conversation turned to RRSPs since the fast-approaching deadline for 2024 RRSP contributions is March 3, 2025. Today, I want to share seven useful things you can do with your RRSP. Most are things people often forget about.
1. Save for retirement. No surprise here. A primary use of RRSPs is to set aside funds for your retirement. If you contribute within your available limit each year, you’ll be entitled to a tax deduction for the contribution, which will save you tax equal to the contribution multiplied by your marginal tax rate (MTR, the tax you pay on your last dollar of income). If you want to know your MTR, check out the calculator offered by accounting firm Ernst & Young (just do a Google search for “EY tax calculator”). If you expect to be in a higher tax bracket next year, you should consider holding off claiming the RRSP deduction until next year to save more tax.
2. Reduce taxes deducted at source. If you contribute to your RRSP for 2025, you can use your contribution receipts to reduce your taxes deducted from your pay for this year. Sure, you could simply wait to get a refund from your RRSP deduction next spring when you file your 2025 tax return, but why not put that money in your pocket sooner? You can do this by filing Form T1213 to request the Canada Revenue Agency’s approval to reduce your taxes deducted at source. CRA will send you a letter that you can provide to your employer as authorization to reduce tax withholdings.
3. Save to buy a home. If you’re a first-time homebuyer, you can sock money away in your RRSP and withdraw up to $60,000 under the Home Buyers’ Plan (HBP) to help buy a home. The withdrawal can be tax-free, but you’ve got to pay it back over 15 years (or pay tax on the amount of any missed repayment). I think that a first home savings account (FHSA) should be your first option for saving for a home, but the HBP can be added to provide access to more funds.
4. Help to pay for an education. You can also use RRSP assets to help pay for an education for you or your spouse (or common-law partner) using the Lifelong Learning Plan (LLP). This plan allows you to withdraw tax-free up to $10,000 a year to a maximum of $20,000 in total for a full-time education (or a part-time education for those with disabilities). The amount withdrawn must be paid back to your RRSP over a 10-year period, otherwise you’ll face tax on the withdrawals.
5. Split income in retirement. In a perfect world, you and your spouse will have equal incomes in retirement. This results in less tax as a couple. One of the easiest ways to accomplish this is for the higher income earner to contribute to a spousal RRSP for the lower income spouse. As the contributing spouse you’ll be entitled to a tax deduction for contributions made to the spousal plan within your limit (you don’t get extra contribution room for a spousal RRSP), but your spouse will generally pay the tax on withdrawals (unless you’ve made contributions to the spousal plan in the year of a withdrawal or the two prior years).
6. Contribute without cash. If you’re short on cash to make RRSP contributions, you can transfer existing investments into your RRSP as a contribution in-kind. The transfer is considered to be a disposition of the investments being transferred, so you might realize taxable capital gains. Capital losses on a transfer are denied. If you have losses, you’d be better off selling the loser investments first, then contribute the cash to your RRSP (and avoid reacquiring the same investment in the period that is 30 days before and after the sale, or your losses will be denied). You might also consider borrowing to contribute (see my article from Jan. 18, 2024, for a good idea here).
7. Overcontribute without penalty. You’re allowed to overcontribute to your RRSP to the tune of $2,000. You can’t claim a deduction for this overcontribution, but the funds can grow inside your RRSP tax-deferred just the same. As you get closer to retirement, you’d be wise to contribute a little less to your RRSP ($2,000 below your allowable contribution limit) to then claim the overcontribution as a deduction at that time.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.
