In this episode of Your Wealth Matters, Janet Kim Sing and Trent Heppner from Capstone Asset Management break down the essentials of Registered Retirement Savings Plans (RRSPs).
We start with the basics—RRSPs offer tax advantages by lowering taxable income and allowing investments to grow tax-free until withdrawal. Strategic planning is key, as withdrawals are taxed. The discussion also covers Spousal RRSPs, a useful tool for income-splitting in retirement, helping couples minimize tax burdens.
Other key takeaways include:
Tax benefits – Contributions reduce taxable income, and investments grow tax-free.
Income splitting – Spousal RRSPs and pension income splitting can optimize taxes.
Flexibility – RRSP funds can help with a first home or education.
Withdrawals – Timing matters, as withdrawals are taxed and don’t restore contribution room.
With the Feb 28 RRSP contribution deadline approaching, now is the time to act! Watch the full video to learn more: maximizing your RRSP and planning for retirement.
As RRSP season approaches, many Canadians start thinking about their retirement savings and how to make the most of their contributions. A Registered Retirement Savings Plan (RRSP) is one of the most effective ways to save for retirement while also benefiting from tax advantages. But how do RRSPs work, and what should you consider when contributing? In this discussion, we’ll break down the key aspects of RRSPs, including contribution limits, tax benefits, spousal plans, and withdrawal rules, to help you make informed decisions about your financial future.
JKS: Welcome to Your Wealth Matters! I’m Janet Kim Sing, Portfolio Manager at Capstone Asset Management and today, I’m joined by my fellow colleague and Dealing Representative on the Private Wealth Team, Trent Heppner.
Today, we’re discussing a topic that is synonymous with this time of the year – RRSPs! Trent, can you start us off by sharing with us what an RRSP is?
TH: Certainly, Janet. I need to first start by highlighting what an RRSP is. A Registered Retirement Savings Plan (RRSP) is a retirement savings plan registered with the Canadian federal government that you can contribute to for retirement purposes. Basically, it’s your personal pension plan that you create yourself.
When you contribute money to an RRSP, your funds are "tax-advantaged", meaning you don’t have to pay tax on the money that you contribute. For example, if you add $10,000 to your RRSP, then $10,000 is deducted from your taxable income so that you’re not paying tax on it.
Also, an RRSP grows tax-free… at least, it is tax-free until you withdraw from it. It is only when you need to start taking funds out of the RRSP or start your pension income, so to speak, that you must pay tax on your withdrawals.
JKS: That is a good overview, Trent, and from an investment perspective, it is useful to know that you can hold a wide range of investments within an RRSP. Your options may depend on the type of plan you hold and your financial institution, but typically, people include stocks, bonds, guaranteed investment certificates (GICs), and mutual funds. Because an RRSP grows tax-free, the investment income or growth earned from these investments is tax-deferred until you withdraw the funds.
It is important for people to know how much RRSP contribution room they have because the amount you can put into your RRSP is limited by this amount, which is also known as your deduction limit. Your RRSP contribution limit is equal to 18% of your earned income in the previous year, up to $32,490 for 2025. Any contribution room that is unused can be rolled over to future years. If you’re unsure what your limit is, your latest Notice of Assessment will have that information, assuming you filed your taxes in the prior year.
TH: Thanks for covering this, Janet.
Next, it’s important for me to share about Spousal RRSP’s. A spousal RRSP can be a tax-effective way for your family to save for retirement. The idea behind a spousal plan is to equalize family income during retirement, which can lead to big tax savings.
How do they work?
If you are married or have a common-law partner, you can contribute to a spousal RRSP for your partner and claim the tax deduction. However, your total contributions to your own plan and your partners can’t exceed your allowable maximum contribution.
Once contributed, the money in the spousal RRSP belongs to your partner. If spousal money isn’t withdrawn in the same year or the next two years, it is treated (taxed) as your partner’s income when withdrawn.
Since spousal RRSPs let you put assets into your spouse's name and eventually have withdrawals taxed in their name, they can help equalize your income in retirement. That's a big step towards your family paying the least possible income tax in retirement.
Are there other ways to share income in retirement?
Yes. Pension Income Splitting was introduced to let you share up to 50% of eligible sources of retirement income (such as RRIF or, pension or annuity income) with your spouse. You can choose whether to split any income and, if so, how much to split when you both file your taxes each year. Since these rules are so flexible, some people wonder if spousal RRSPs are still relevant.
Is a spousal plan right for you?
You get the same immediate tax benefit as contributing to your own RRSP as a spousal RRSP. With the new pension income splitting rules, you can share up to 50% of your RRIF income with your spouse. So why bother with spousal RRSPs anymore?
There are at least two good reasons to still consider spousal RRSPs.
One is if you and your spouse plan to retire in different years. You may split income from your RRSP, RRIF, life annuity or other qualifying payments only if the recipient of the pension is 65. This makes the Spousal RRSP relevant if you plan on retiring and withdrawing assets before age 65.
Be careful you don't find the working spouse has all the retirement assets and the retiree nothing. Pension Income Splitting only lets you share income being received. If the working spouse is not yet drawing on retirement assets or income, they have nothing to allocate to the retired spouse. Building up an initial nest egg for the first retiree will help, and a spousal RRSP might fit as part of that.
Also, Pension Income Splitting rules may not go far enough to equalize and minimize your tax in retirement. You can only share up to 50% of eligible income, which leaves out non-registered income like dividends, interest and capital gains. If your and your spouse's incomes are substantially different in retirement (say, because of a large inheritance), a spousal plan may help rebalance your retirement incomes.
JKS: That’s great information, Trent.
I think we should next discuss eligibility, as in who can open an RRSP? While certain financial institutions may require you to be the age of majority before setting up an account, there's no minimum age required to open an RRSP, so the moment you are earning income, you can set up and contribute to an RRSP up to the end of the year you turn 71 if you are a Canadian resident, have earned income and file a tax return.
To answer the question of when is the right age to open an RRSP? This can vary from person to person. Generally, however, the earlier, the better! It's never too early to start investing for retirement. In fact, investing early can potentially help you reap the benefits of tax-deferred investment returns, depending on the type of investment you hold.
Trent, let’s talk about the benefits of investing within an RRSP.
TH: Sure, Janet
Some of the benefits of investing in an RRSP include:
Tax-Deferred Savings: Any investment income earned on investments held within the plan is tax-deferred if it remains in your RRSP.
Tax Deductions: Your RRSP contributions are tax-deductible and may help to reduce the total amount of income tax you pay.
Optimizing Deductions: You can carry forward your unused RRSP contribution room from years of lower income and use it in future years when your income may be higher. This can help you benefit from tax savings when you’re in a higher tax bracket.
Income Splitting: If you earn more than your spouse or common-law partner, contributing to a spousal RRSP may help reduce the total amount of tax you pay, as we just covered.
Financing your First Home or Education: You can withdraw money from your RRSP without being immediately taxed to pay for your first home or education under the Home Buyers' Plan or Lifelong Learning Plan (LLP). We’ve touched on both points in previous episodes of the Your Wealth Matters series, so be sure to watch our previous episodes.
JKS: Thanks, Trent, and that’s a great segue into the next aspect of RRSPs that I want to mention – which is when can one withdraw their money? You can make a withdrawal from your RRSP at any time if your funds are not in a locked-in plan, but withdrawals will be included in your income and subject to tax in the year of withdrawal. In addition, if you make a withdrawal while still within the RRSP account type, a portion, which is called excess withholding taxes, gets remitted to the CRA as a prepayment of the income tax you will owe for the year.
The ultimate benefit of the RRSP is in making withdrawals in a year in which your taxable income will be lower, presumably later in life. And though we’ve spoken about the Registered Retirement Income Fund (RRIF) in a previous video, I’ll just mention that withdrawals from an RRIF are not subject to the excess withholding taxes that a withdrawal from the RRSP would entail.
While this is not meant to be a comparison video, I think it’s worth clarifying that, unlike withdrawals from a tax-free savings account (or TFSA), withdrawals from an RRSP are not added back to your contribution room in the year following the withdrawal. When in doubt, prior to making any withdrawals, it’s a good idea to consult with your Portfolio Manager or Tax Professional to ensure that there are no tax consequences that you haven’t considered.
TH: Thanks, Janet! I know that we are coming to the end of our time, but I wanted to cover a few more things before we finish. Firstly, I wanted to cover how long an RRSP can stay open. You are not allowed to own an RRSP past December 31 of the calendar year you turn 71.
At that point, you’ll have to withdraw funds from the RRSP as a lump sum, transfer its contents to a Registered Retirement Income Fund or purchase an annuity.
And as a quick reminder before we say goodbye, this year’s deadline for RRSP contributions is Feb 28, so be sure not to procrastinate and speak with your Portfolio Manager right away!
JKS: Thanks, Trent
To our viewers, we hope that you’ve enjoyed this edition of Your Wealth Matters. Bye for now!
TH: Bye, everyone!
Planning for retirement can feel overwhelming, but understanding how to maximize your RRSP can make a significant difference in your long-term financial security. Whether you're deciding when to contribute, how to invest within your plan, or when to start withdrawing, having a solid strategy is key.
If you have questions about your RRSP or need guidance on the best approach for your situation, Capstone Asset Management is here to help. Reach out to our team for personalized advice, and stay tuned for the next episode of Your Wealth Matters, where we’ll continue exploring ways to help you build and protect your wealth.