The History and Purpose of RRSPs

What is an RRSP? RRSP stands for Registered Retirement Savings Plan. It’s a financial instrument created in 1957 at the federal level, and in 1959 at the provincial level. But it wasn’t until the 1990s that a major reform gave us the RRSP as we know it today. It’s designed to help Canadians save for retirement. In this article, we’ll take a closer look at the key features of this type of account.


Every year, the total amount of RRSP contribution room is determined by the income you earned during the previous year. It is equivalent to 18% of your earned income, or to the amount set by the government every year (in 2024, that amount is $31,560). The lower of the two amounts is used. What’s more, unused contribution room can be carried forward and used the following year, ensuring that it is never lost. Information about contribution room is included on your most recent Notice of Assessment.

Primary goal

Saving for retirement

Secondary goal


Minimum age


Maximum age

71 (convert to RRIF)

Annual contribution room limit


18% of the previous year’s earned income up to $31,560 in 2024, less the pension adjustment (PA)

Lifetime contribution limit


Contribution deadline

Current year, or the first 60 days of the following year (March 1st)

Adjustment of balance or contribution room at withdrawal


Deductible contribution


Taxable upon withdrawal

Yes, with the exception of the HBP and the LLP


*HBP: up to $35,000 for first-time home buyers (mandatory repayment)

*LLP: $20,000 withdrawal limit ($10,000/year) to help people go back to school

Advantages of RRSPs

  • They are tax deductible: RRSP contributions are tax deductible, which can help reduce the income tax you have to pay.
  • Their growth is tax-sheltered: Income generated by RRSP investments is tax-sheltered, as long as it stays in the account.
  • They can help you save for retirement: Setting up a systematic, payday contribution can help a great deal towards your future financial security.
  • Unused contribution room is cumulative: If you are unable to contribute the maximum to your RRSPs every year, unused contribution room accumulates. You can “catch up” the excess room at any time. There are some strategies you can put in place to help you do so, in the pre-retirement consolidation phase.
  • They can be used to buy a first home (HBP): Using the Home Buyers’ Plan (HBP), you can withdraw funds from your RRSP to buy your first home without having to pay taxes on the withdrawals.
  • They can be used to go back to school: Using the Lifelong Learning Plan (LLP), you can withdraw funds from your RRSP to return to full-time education without having to pay taxes on the withdrawals.

Disadvantages of RRSPs

  • They are taxed upon withdrawal: When you withdraw money from your RRSP at retirement, the withdrawals are taxable, which can affect your disposable income.
  • They are contribution-limited: Annual RRSP contribution limits can curb the growth of your savings, especially if you are a high earner.
  • They include penalties for early withdrawal: Early withdrawals may result in tax penalties, reducing the advantages of an RRSP.
  • RRSP assets are not included as liquid securities on the personal balance sheet: Never seen as emergency fund savings.
  • They come with the risk of value fluctuation: Most long-term RRSP investments are subject to market fluctuations, which can lead to volatility.

When planning your savings, it’s important to take these advantages and disadvantages into account. It’s important to remember that RRSPs are not necessarily the best solution for everyone.

There are several approaches you can take to get the most out of your RRSPs, and each is unique to your situation. To learn more about RRSPs and how to get the most out of them, book an appointment with one of our advisors.