RRSPs: how contributions save tax

An RRSP contribution is deductible: it comes off your income before your tax is worked out, so you pay less tax for the year. The money then grows without tax inside the plan, and you pay tax on it when you take it out.

How the deduction saves you tax

When you put money into a registered retirement savings plan (RRSP), you can deduct the contribution on your return (line 20800). The deduction lowers your taxable income, so the saving depends on the tax rate on your top dollars of income, federal and provincial combined. The higher your bracket, the more each dollar you deduct is worth.

Interest, dividends and capital gains earned inside the plan generally aren’t taxed while the money stays there. Tax comes later, when you withdraw or when the plan starts paying you a retirement income.

To see what a contribution would save you, try the income tax and RRSP savings calculator, or find your bracket in the income tax brackets table.

How much you can contribute

Your RRSP deduction limit for a year is, in general:

• 18% of your earned income from the previous year, up to that year’s dollar limit ($32,490 for 2025 and $33,810 for 2026)
• minus your pension adjustment, if you belong to a workplace registered pension plan or deferred profit sharing plan (it’s in box 52 of your T4 slip)
• plus any room you didn’t use in earlier years.

Earned income is mostly employment and self-employment income, less certain employment expenses and business or rental losses. Unused room carries forward with no time limit.

You don’t have to calculate it yourself. The CRA shows your limit on your latest notice of assessment and in your CRA account. Room is built from the income on your returns, so file every year, even a year with little income, to keep your limit up to date.

The yearly limits are also in our registered plan limits table.

The deadline

To deduct a contribution for a year, you have to make it by a deadline early the following year. For your 2025 return, contributions made from March 4, 2025 to March 2, 2026 qualified.

You can contribute to your own RRSP until December 31 of the year you turn 71. By then you have to wind the plan up: transfer it to a RRIF, buy an annuity or withdraw it. See Converting your RRSP to a RRIF.

You don’t have to deduct it right away

You can contribute now and claim the deduction in a later year, when you may be in a higher tax bracket and the deduction is worth more. Report the contribution on Schedule 7 so the CRA tracks it as an unused contribution.

Going over your limit

If your unused contributions are more than your deduction limit plus $2,000, you generally pay a tax of 1% a month on the excess. Check your limit before a large contribution.

Taking money out

A withdrawal is added to your income for the year it comes out (line 12900). Your financial institution withholds tax at source, at rates that depend on how much you take out and where you live (lower rates apply in Quebec, where provincial tax is also withheld). The withholding may not cover all the tax you owe at your bracket, so you could owe more when you file.

Two programs let you take money out without tax withheld and without it counting as income: the Home Buyers’ Plan, toward buying a home (see FHSA and the Home Buyers’ Plan), and the Lifelong Learning Plan, toward training or education for you or your spouse or common-law partner. You have to pay the money back to your RRSP on a set schedule; any required repayment you miss is added to your income.

Spousal RRSPs

You can contribute to an RRSP for your spouse or common-law partner. The contribution uses your deduction limit and you claim the deduction, but your spouse is the plan’s owner (the annuitant), and generally only they can withdraw from it.

There’s a catch if they withdraw it soon after. If you contributed to any spousal RRSP for them in the year of the withdrawal or either of the two years before, some or all of the withdrawal may be taxed as your income instead of theirs. The CRA’s tip: don’t have your spouse withdraw in a year when you’ve contributed to their RRSPs that year or in the two years before.

In short

• An RRSP deduction lowers your taxable income, so it saves the most when your tax rate is high.
• Your room is 18% of last year’s earned income, up to the dollar limit, less any pension adjustment, plus unused room. Your notice of assessment shows it.
• Contribute by the deadline early the next year (March 2, 2026 for 2025) to deduct for that year, or keep the deduction for later.
• Withdrawals are taxed as income, and the tax withheld at source may not be enough.
• To compare the RRSP with a TFSA or FHSA, see RRSP, TFSA or FHSA: which first?