How it works: RRSPs, the first-60-days, and more.

January 20, 2023

Registered Retirement Savings Plans (RRSPs) are a great way to save money for retirement and reduce your taxes, so it’s no surprise that millions of Canadians have one. As much as we love RRSPs, we know managing them can be a bit confusing.

Here’s what’s in this article:

How does it work?

You can contribute to your RRSP every year to save for your retirement while lowering your tax payable. RRSPs aren’t tax-free, but they are tax-deferred. This means you won’t owe taxes on the money you put into your RRSP until you withdraw it, usually after you retire.

How do I set up an RRSP?

You can set up an RRSP through different types of financial institutions including your bank, credit union, trust, insurance company, or financial adviser. The issuer’s (the person or institution with whom you opened the RRSP) responsibilities include registering the plan, receiving the amounts that you contribute, and trading the securities (if applicable) that are held within the plan on your behalf.

What’s the first-60-days rule?

Unlike most deductions that you make throughout the tax year, RRSPs are one of the few that aren’t tied to the calendar year. As far as taxes go, there are two contribution periods that you can apply to each tax year:

  • Between March 2 and December 31 of the current tax year; or
  • Between January 1 and March 1 of the current calendar year.

This is called the first-60-days rule.

For example, let’s say you’re filing your 2022 tax return. You need to specify how much you contributed to your (or your spouse’s or common-law partner’s) RRSP between March 2 and December 31, 2022 as well as the amount you contributed between January 1 and March 1, 2023.

What’s an RRSP deduction limit?

Your RRSP deduction limit is the maximum amount of RRSP contributions you can deduct on your tax return. By deducting your RRSP contributions (up to your deduction limit for the year), you can lower your tax payable.

You can find your RRSP deduction limit:

  • At the bottom of your latest notice of assessment (NOA) or reassessment;
  • By logging in to your CRA My Account (if you're registered);
  • By calling the RRSP Tax Information Phone Service (TIPS) hotline at 1-800-267-6999; or
  • On your T1028: Your RRSP Information (in some cases, the CRA will send this form to you if your RRSP deduction limit has changed since you filed your return).

You can decide how much of your yearly contributions you’d like to deduct on your return. If you don’t deduct all of your contributions this year, you can carry the rest forward to use in the future. This gives you the opportunity to maximize your tax savings over a number of years. Keep reading this article to learn more about what to do with your unused RRSP contributions.

What’s an RRSP contribution receipt?

You’ll need the information on your RRSP contribution receipt(s) to claim the amounts on your taxes. The issuer of your RRSP (for example, your bank) will send you a receipt showing how much you or your spouse contributed to the RRSP from March 2 to December 31. If you also made RRSP contributions in the first 60 days of the year, you’ll get a separate RRSP contribution receipt for that period.

If you haven't received a receipt for your RRSP contributions, contact the issuer of your RRSP to get a copy.

Can I contribute to my spouse’s RRSP?

Yes! When you contribute to your spouse’s RRSP, it still lowers your RRSP deduction limit, but you get credit for the contributions on your tax return.

You might choose to contribute to your spouse’s RRSP if they’re in a lower tax bracket than you, so when they eventually withdraw your contribution from their RRSP, they pay less tax on it. Keep in mind, your spouse needs to wait at least 3 years before withdrawing your contribution, or else the amount will be taxed according to your income (not theirs). For example, if you contribute to your spouse’s RRSP in 2022, they’ll need to wait until 2025 to withdraw the amount. Keep reading this article to learn more about how RRSP withdrawals are taxed.

What do I do with unused RRSP contributions?

If you made RRSP contributions during the year and reported them on that year’s tax return but didn’t deduct the full amount, you’ll have unused RRSP contributions. You can claim your unused RRSP contributions in a future year to lower your taxes for that year.

You can find your unused RRSP contribution amount on your:

  • Notice of assessment (NOA) or notice of reassessment;
  • CRA My Account; or
  • T1028 form (if your RRSP deduction limit has changed since you filed your last return).

If you’re downloading your information into your return from the CRA’s website using their AFR service, any unused amounts (as well as your RRSP contributions and deduction limit) will automatically download into your return.

What if I forgot to report my RRSP contributions last year?

If you made RRSP contributions in a previous year but didn’t report them, you’ll need to adjust that year’s return to deduct these contributions from your income.

What if I went over my RRSP deduction limit?

If you contribute more than $2,000 over your deduction limit, you'll have to pay a tax of 1% per month on the amount you over contributed.

You have 90 days after the end of the year to submit the T1-OVP 2022 Individual Tax Return for RRSP, PRPP and SPP Excess Contributions form to the CRA. You’ll use this form to calculate your penalty tax.

You can lower the penalty tax by withdrawing the over-contribution from your bank account and returning it to your RRSP as soon as possible.

If you want your bank to refund your over-contribution without charging the regular tax on RRSP withdrawals, you’ll need to ask the CRA to certify the over-contribution amount by filing a T3012A form right away. It might take some time, so if you don’t want to wait for a T3012A form to be approved by the CRA (which might be the case if the penalty tax is adding up) and if you don’t mind having tax withheld, you can make a regular withdrawal from your RRSP instead.

Although you’ll need to report the amount you took from your RRSP as income when you file your return, you can claim an offsetting deduction so your over-contribution doesn’t raise your taxable income for the year. For example, if the rest of your taxable income this year is $50,000, and your bank refunded $10,000 of an over-contribution to your RRSP, your total taxable income without an offsetting deduction will be $60,000. However, if you claim an offsetting deduction for your over-contribution, this will bring your taxable income back down to $50,000.

You can claim an offsetting deduction by submitting the T746 form when you file, as long as:

  • You reasonably expected to claim a deduction for the contribution, either in the year you made the contribution or the year before; and
  • You didn’t make the contribution with the plan to withdraw it later and deduct the offset amount.

Need help? Find an H&R Block office near you and one of our Tax Experts can walk you through this process.

Can I withdraw from my RRSP before I retire?

Yes! Keep in mind, the money you take out of your RRSP is considered income, so you have to add it to the other income you earned and reported during the year on your return. This means you could find yourself in a different tax bracket and you could have to pay more tax this year than you did last year.

If you withdraw from your RRSP early, you’ll also lose the contribution room you originally used to deposit that amount (meaning the maximum amount you can contribute to your RRSP will permanently be lower by the amount you withdrew).

How are my withdrawals taxed?

Anytime you withdraw money from your RRSP, some of it is taxed at the source, meaning a portion of the money is sent to the CRA before you receive it. The amount you’ll be taxed depends on the amount you withdrew:

  • 10% (5% if you’re a Québec resident) if you withdraw up to $5,000;
  • 20% (10% if you’re a Québec resident) if you withdraw between $5,001 and $15,000; and
  • 30% (15% if you’re a Québec resident) if you withdraw $15,001 or more.

If you’re a resident of Québec, an additional 15% will also be sent to Revenu Québec on top of the federal rates listed above. For example, let’s say you withdraw less than $5,000 from your RRSP. From the amount you withdraw, 20% in total will be withheld as tax (5% is sent to the CRA, and 15% is sent to Revenu Québec).

Can I withdraw from my RRSP without tax penalties?

The Home Buyers Plan (HBP) and Lifelong Learning Plan (LLP) allow you to withdraw funds from your RRSP without tax penalties, as long as they’re paid back within deadline you’re given.

Have a question about your RRSP? Get help from the largest network of reliable Tax Experts by choosing one of four convenient ways to file: File in an Office, Drop-off at an Office, Remote Tax Expert, or Do It Yourself Tax Software.

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