10 Must-Know Answers to Your RRSP Questions
In this episode of the Women’s Wealth Canada Podcast, host Glory Gray shares her personal journey of planning early retirement for her husband, Squatch, using the same strategies she applies with her clients. From assessing household expenses to leveraging RRSPs and mindful saving, Glory breaks down the practical steps that made early retirement a reality.
Then, she dives into the 10 Must-Know Answers to Your RRSP Questions, offering valuable insights on:
What an RRSP is and how it works.
How RRSPs help reduce taxes and build long-term wealth.
Contribution limits, deadlines, and withdrawal rules.
Special programs like the Home Buyers’ Plan and Lifelong Learning Plan.
The differences between RRSPs and TFSAs.
Whether you’re just starting your retirement savings journey or looking for ways to optimize your RRSP strategy, this episode is packed with actionable tips to help you take control of your financial future.
Table of Contents
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10 Must-Know Answers to Your RRSP Questions
I have some happy news to share on the personal front today. Many of you know my husband, Squatch. That’s not his real name, by the way—there’s a funny story behind that nickname—but here on the podcast, he’s known as Squatch.
Anyway, Squatch was planning to retire in 2027. But a while back, he asked me what I thought about him retiring sooner rather than later. He had a good income, but it was a very stressful job that affected his health. His unhappiness also began to affect my mental health. It was getting to the point where we knew we had to make a change.
Another factor weighing on our minds was our aging family members. Once they’re gone, they’re gone. We wanted to spend as much time with them as possible while we still could.
So, we started working towards this goal—and I’m happy to say we accomplished it!
A friend recently asked me how we managed to make this happen. We approached it exactly as I would with any of my clients.
How We Planned for an Early Retirement
Step One: Assess Expenses
The first thing we did was determine what our monthly household expenses were now. I follow our expenses very closely and look at them every month, so it was easy for me to find out what we are really spending. Knowing what you need to spend on household expenses every month gives you great information because if you start to drift into getting into the habit of buying things you don’t need or getting away from putting money towards your goals, the numbers will tell you quickly and you can make some decisions and adjustments if you want to.
Project Future Expenses
Next, we figured out what our household expenses would be after Squatch retires. We made some adjustments because we knew that with him being home, we’d save on gas because he wouldn’t be commuting and he wouldn’t be going out for lunch. He’d also save a bit on clothes. We decided to defer a few big renovations on the house for a few years until his pension starts coming in. But, we added a larger travel budget than what we had before, because if Squatch wasn’t working, we’d have time to visit family more and, as I mentioned, that was one of the main reasons he wanted to retire early.
So, we knew what money was going out. Now we had to figure out what needed to come in over the next two years. My financial planning business continues to grow, so we made our best estimate as to what income it would be bringing in.
Plan Income Sources
Then we estimated how much money we would need to take from our savings and other investment accounts for the next two years until Squatch starts receiving his pension.
Once we knew what that amount was, we started saving, putting away as much as we could as fast as we could. Some went into a savings account, some went into Squatch’s RRSP account.
For the savings account, I like EQ Bank, they have great rates and it’s easy to transfer what you need online back and forth between the savings account and the chequing account at our bank. I’m not affiliated with them in any way, I just like their savings account for holding cash I know I will need soon.
Some of you may ask, why didn’t we put that money into investments, like stocks? The part that went into the RRSP did go into investments, and I’ll talk about that later. But the money we put into the savings account we were going to need to live off. We were going to withdraw it in one or two years.
You may have heard me talk about my waterfall theory of retirement income planning. If you have, you know that I believe any money you are going to need to access in the next two years, certainly the next year, you should have available in cash. If you haven’t heard about my waterfall theory, listen to Season One Episode 7 A Girl Needs Cash Part 2 to learn more.
Save Aggressively
Okay, so we started socking money away into the savings account and also into Squatch’s RRSP. Why didn’t we just put all the money into a savings account? There’s two reasons for this, one: we still needed to continue to save for our later retirement years. We need that money to be tucked away where it can grow. The second reason is that by putting the money into an RRSP, we have more money going to work for us. We’d have more money working for us because there are tax advantages to an RRSP. We’ll talk about that in a minute.
Now, we had the advantage of already having a lot of money saved before all of this happened, and that’s something people sometimes don’t think about when it comes to money. It is so hard to save that first $25,000, or $50,000 when you are first starting out. It feels like you’ll never get there. But once you get to those larger numbers, it is much easier to grow your money because you’re starting out with a higher number and that higher number is doing the heavy lifting for you.
Think about it. If you are investing and earning, say, 5%, on those investments, which is very reasonable, even considering the fact that markets go down sometimes. If you start out with $10,000, the next year you will have $10,500. But if you start out with $100,000, the next year you will have $105,000. Doing exactly the same thing! The following year, you would have over $110,000 versus $11,000 if you started out with $10,000.
This is the reason we always talk about the importance of starting as early as you can to save. And it’s why Squatch and I knew it was important to save as much as possible so it could grow faster during a time when we wouldn’t be able to add much money to our retirement savings.
So, by planning, saving and being mindful in our spending, we were able to accomplish the goal of retiring Squatch earlier than we had planned.
We used to have a business together that we ran from home, so we’re accustomed to both of us being home and we are both so much more happy now that he is home. Honestly, I would eat Kraft Dinner every night if it meant he could stay home, but it is a lot more comfortable doing it the way we did with a little planning and a lot of saving in advance.
But we still have a retirement to plan for, just like you. We still need to grow our retirement accounts. So, I thought we could talk today about the 10 Must-Know Answers to Your RRSP Questions.
The Advantage of Starting Early
Now, we had the advantage of already having a lot of money saved before all of this happened, and that’s something people sometimes don’t think about when it comes to money. It is so hard to save that first $25,000, or $50,000 when you are first starting out. It feels like you’ll never get there. But once you get to those larger numbers, it is much easier to grow your money because you’re starting out with a higher number and that higher number is doing the heavy lifting for you.
Think about it. If you are investing and earning, say, 5%, on those investments, which is very reasonable, even considering the fact that markets go down sometimes. If you start out with $10,000, the next year you will have $10,500. But if you start out with $100,000, the next year you will have $105,000. Doing exactly the same thing! The following year, you would have over $110,000 versus $11,000 if you started out with $10,000.
This is the reason we always talk about the importance of starting as early as you can to save. And it’s why Squatch and I knew it was important to save as much as possible so it could grow faster during a time when we wouldn’t be able to add much money to our retirement savings.
So, by planning, saving and being mindful in our spending, we were able to accomplish the goal of retiring Squatch earlier than we had planned.
We used to have a business together that we ran from home, so we’re accustomed to both of us being home and we are both so much more happy now that he is home. Honestly, I would eat Kraft Dinner every night if it meant he could stay home, but it is a lot more comfortable doing it the way we did with a little planning and a lot of saving in advance.
Transitioning to Retirement
But we still have a retirement to plan for, just like you. We still need to grow our retirement accounts. So, I thought we could talk today about the 10 Must-Know Answers to Your RRSP Questions.
10 Must-Know Answers to Your RRSP Questions
What is an RRSP?
When you deposit money into your RRSP, it lowers your taxable income for the year, which means a smaller tax bill for you. For example, if you earn $60,000 and deposit $5,000 into your RRSP account, when you file your taxes, you’re only taxed on $55,000, not the $60,000 you earned. The best part? Your money also grows tax-free inside the RRSP.
That means any interest, dividends, or capital gains stay untaxed—until you withdraw the funds in retirement when you're likely not paying as much in taxes because you’re not working at that time. It’s a powerful tool for building long-term wealth!
How do RRSPs reduce taxes?
As I mentioned, when you contribute to an RRSP, the amount you contribute is deducted from your taxable income, meaning you pay less tax for the year. For example, if you make $80,000 and contribute $10,000, you’re only taxed on $70,000.
The magic happens inside the RRSP, too—your investments grow tax-free. Whether you’re investing in mutual funds or GICs, you won’t pay tax on any gains while the money stays in the account. When you withdraw it in retirement, it's taxed at that time. The idea is that you’re likely earning less money then because you’re no longer working, so you’d be taxed at a lower income tax rate.
One other neat feature of RRSPs is the ability to carry forward what’s called unused contribution room. There’s a limit to how much you can deposit into your RRSP in a given year, called the contribution limit for that year. If you don’t get a chance to make a deposit into your RRSP in any given year, the contribution limit for that year rolls over and builds up.
If you don’t max out your contribution limit one year, that room doesn’t disappear. It rolls over, giving you the opportunity to contribute more in future years, which can further reduce your taxable income in those years.
What is the amount of the RRSP contribution limit?
The RRSP contribution limit is based on 18% of your earned income from the previous year, up to a cap. For 2025, that cap is $32,490. So, if you earned $60,000 last year, your limit for this year would be 18% of $60,000 or $10,800. If you’re part of a pension plan, your contribution room is reduced by what's called a Pension Adjustment. You’ll find that amount on your tax slip at the end of the year.
If you didn’t max out your contributions in previous years, any unused room carries forward, so you can catch up when you're able. But be careful—over-contributing beyond your unused room results in penalties.
When is the deadline to contribute to my RRSP?
The RRSP contribution deadline is one of those key dates to mark on your calendar—especially as tax time approaches. The deadline is usually around the first 60 days of the year following the tax year. For the 2024 tax year, the deadline to contribute is March 1, 2025. Any contributions made by that date will reduce your 2024 taxable income, potentially lowering your tax bill or boosting your refund. If you miss the deadline, your contributions will count for the 2025 tax year, not 2024.
If you're unsure about the amount of your contribution room, check your CRA Notice of Assessment that you would have received last spring after your taxes were filed.
What happens to my RRSP when I retire?
When you retire, your RRSP doesn’t just disappear—it’s converted into a Registered Retirement Income Fund, commonly known as a RRIF. This allows you to start withdrawing regular income, with the added bonus of continued tax-deferred growth inside the RRIF account. However, the government requires you to take a minimum withdrawal each year based on your age, and these withdrawals are taxed as income. You can always withdraw more than the minimum if you need to, but those extra withdrawals will also be taxed as regular income.
You can consider options other than a RRIF, like buying an annuity. An annuity is a financial product that gives you a guaranteed fixed income for a certain period of time. Annuities can provide stability and predictability, but I rarely see them because most people want more flexibility and the potential for higher returns on their investments. Annuities are fixed contracts.
How do RRSP withdrawals work?
When you retire and start withdrawing from your RRSP, the key thing to remember is that these withdrawals are taxed as income. So whether you’re withdrawing through a RRIF for regular income or taking a lump sum, you'll pay taxes based on your total income for the year.
Let’s say you had an RRSP, you had not yet turned it into a RRIF yet and you wanted to make a withdrawal. When you make a withdrawal, your financial institution will withhold a portion of the withdrawal for taxes right away. The withholding tax outside of Quebec, which has different rules, depends on the amount of the withdrawal:
For withdrawals up to $5,000,10% tax is withheld
For withdrawals between $5,000 and $15,000, 20% tax is withheld
For withdrawals over $15,000, 30% tax is withheld
This means that, for example, if you withdraw $10,000 from your RRSP, 20%, or $2,000 will be withheld for taxes right away, so you’ll receive $8,000, not $10,000.
However, this withholding tax is just a prepayment of your income tax for the year. You’ll still need to report the withdrawal on your tax return, and your final tax liability will depend on your total income for the year.
If your total income—including the RRSP withdrawal—is low enough, you might get some of that withheld tax that you paid up front back when you file your return. But if your income is higher, you could end up owing more in taxes.
Can I use my RRSP for something other than retirement?
Yes, in certain circumstances you can and you don’t have to pay taxes.
If you’re buying your first home, the Home Buyers’ Plan (HBP) lets you withdraw up to $60,000 tax-free—as long as you repay it over 15 years. Your spouse and you can each take out $60,000 if you both have RRSPs to withdraw from.
The Lifelong Learning Plan (LLP) allows you to take out $20,000 for education for you or your spouse, with repayment over 10 years. You do have to attend school full time to qualify, though.
But if you withdraw funds for other reasons outside of these two special plans, keep in mind that RRSP withdrawals are taxed as income. Plus, you lose the benefit of that tax-deferred growth. So, always consult a financial advisor before making a move.
Should I contribute to an RRSP or a TFSA?
If you have an income of more than about $50,000, an RRSP is likely your best bet, because you’ll save so much on taxes.
If you earn less than $50,000 a TFSA makes more sense to use as your main savings vehicle. Once you start making more than $50,000, switch to an RRSP so you can divert more of your money away from the CRA and into your own pocket. Once you’ve maxed out the amount you can save there, start saving extra in a TFSA.
What happens to my RRSP if I pass away?
When you pass away, the RRSP will be included in your estate and subject to taxes, but it can be transferred to a spouse or common-law partner tax-free, or to other beneficiaries with certain tax implications.
When it comes to your RRSP and what happens if you pass away, it’s so important to have a plan in place to help minimize the tax impact on your loved ones.
Let’s go through the different scenarios.
If you have no beneficiary listed on your RRSP account, the funds will go through probate and income taxes will be due when your executor files your estate’s final tax return.
If your spouse is the beneficiary, they can roll it over into their own RRSP or RRIF. It will not be part of probate and they don’t have to pay taxes on it until they withdraw it.
If the beneficiary is a child, or sibling or someone else, the funds will go directly to them, avoiding probate. BUT, the full amount gets taxed in your final tax return after your death. So it would be smart to have enough funds set aside to pay those taxes. A life insurance policy is an excellent way to do this.
Here’s a real life example of this. An acquaintance of mine had no spouse, so he named his sister as beneficiary on his RRSP. He named a friend as his executor. When this acquaintance died, the executor sent all the funds from the RRSP to the sister without holding any of the funds back. He didn’t realize that the estate would have to declare the entire amount of the RRSP as income and pay tax on that entire amount.
When the executor went to the sister and asked for the cash back to pay for the income taxes, she told him to go pound sand. This left the executor, as part of his fiduciary duty, personally responsible for the taxes. He worked with the CRA to have them go after the sister for the funds, not him, but it was quite a mess. So if you do not have a spouse, you will need to carefully consider your beneficiary and make sure enough money is set aside to pay income taxes on your final return.
How can I transfer my RRSP to a different financial institution?
Great question! We handle these all the time in our office when we have clients with RRSPs who want to transfer them to us to have us handle their investments. The good news is, transferring your RRSP to another institution is possible, and it’s actually a relatively straightforward process. But there are a few important things to keep in mind to ensure it’s done properly.
First, it’s important to understand that transferring your RRSP to a new institution is not the same as withdrawing the money. If you were to walk into your bank and say “I want to withdraw the funds in my RRSP with the idea that you would deposit them into another RRSP next week, you’d face taxes on that amount, and that could lead to a big tax bill.
But a transfer is different: when you transfer your RRSP, you’re simply moving the money between financial institutions without triggering any taxes. The funds remain sheltered within the RRSP and continue to grow tax-deferred.
And the two institutions handle it all for you. Our back office talks to the back office at the old financial institution and the transfer is made, tax free.
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