Updated Checked by the Tax-Services.ca editorial team How we check
An RRSP in Canada is a registered account where the money you put in comes off your taxable income, grows without yearly tax, and is taxed as income when you take it out. The bet is simple: you pay tax later, hopefully at a lower rate than you would today.
How does an RRSP work from deposit to withdrawal?
You open the account at a bank, credit union or investment firm and put in money. You then deduct the contribution on your tax return, which lowers the tax you owe for that year. Inside the account, interest and investment growth aren’t taxed as they build up.
The tax comes back when you withdraw. Everything you take out is added to that year’s income. That’s why the RRSP is usually called a deferral and not a gift. If your rate falls after you retire, you come out ahead. If it doesn’t, you’ve broken even on the tax and kept the growth.
What does a contribution save you?
Here are two cases from the RRSP tax savings calculator, both for a $10,000 contribution in Ontario.
| Taxable income | Tax saved | Real cost of the $10,000 |
|---|---|---|
| $90,000 | $2,965 | $7,035 |
| $250,000 | $4,982 | $5,018 |
The higher earner gets far more back, which is why the RRSP tends to suit people with higher incomes best. If you earn little today and expect more later, a TFSA may fit better. The TFSA calculator shows your room.
Say Chloe in Kelowna is the $90,000 earner in the first row. She puts in $10,000, and the refund is $2,965. If she drops that refund back into the RRSP when it arrives, she’s adding $2,965 of money she’d otherwise have spent, and it starts growing without yearly tax too. That second step is the one most people skip.
How much tax comes off an RRSP withdrawal?
The bank holds back tax when you withdraw, outside Quebec at 10% up to $5,000, 20% from $5,001 to $15,000, and 30% above $15,000. Quebec has its own mix of federal and provincial withholding, so we leave it out here.
That withholding is only a down payment. Your real tax is settled when you file. We tested two cases in the RRSP withdrawal tax calculator, with $40,000 of other income in Ontario.
A $4,000 withdrawal has $400 withheld, but the real tax is $762, so you owe $362 more at filing. A $30,000 withdrawal has $9,000 withheld, and the real tax is $7,232.78, so you get $1,767.22 back. In these two cases the small one was under-withheld and the big one over-withheld, and your own numbers will depend on your other income.
Can you use an RRSP for a home or school?
Yes, two programs let you borrow from your own RRSP without tax, if you pay it back. The Home Buyers’ Plan allows up to $60,000 and a 15-year repayment. For withdrawals made from 1 January 2026 to 31 December 2028, repayment starts in the fifth year after the withdrawal year, so a 2026 withdrawal means a first repayment in 2031.
The Lifelong Learning Plan lets you take up to $10,000 a year and $20,000 in total for education, generally repaid over 10 years. First-time buyers should also compare it with the FHSA, which needs no repayment.
What happens at 71?
By the end of the year you turn 71, the RRSP has to be closed, converted to a RRIF, or used to buy an annuity. A RRIF then pays you a minimum amount every year, and each payment is taxed as income. The retirement income tax calculator shows the tax on a mix of pension, CPP, OAS and RRIF income.
How do you actually start?
Check your room on your last notice of assessment, since that’s the number that counts, not what a friend says they put in. Then decide how much you can leave alone for a few years. An RRSP that gets raided at tax time every spring isn’t doing its job. Many people set up a small automatic transfer on payday, and a few bucks a pay adds up faster than one big scramble in February. Pick what the money will be invested in, then leave it there.
Mistakes to avoid with an RRSP
Don’t treat the refund as spending money. It’s better used to top the account up or pay down debt. Don’t withdraw early for small things, because the withdrawal is taxed as income. And don’t go over your room by more than the CRA’s $2,000 buffer, because the tax on the excess is 1% a month. The CRA’s page on how contributions affect your RRSP deduction limit describes that rule. Your room is on your notice of assessment. For 2026 the dollar limit is $33,810.
Also check what’s inside the account. An RRSP is a wrapper. The money can sit in cash, a GIC, funds or shares, and the wrapper’s tax rules are the same for all of them.
Sources, and how we checked them
The limit, the withholding rates, the Home Buyers’ Plan and Lifelong Learning Plan rules and the age 71 rule come from the Canada Revenue Agency‘s RRSP pages. The tax figures are results from our own calculators using 2026 rates and Ontario tax. Your result will differ with your province and other income. We’re an independent guide, not part of the CRA, and this page isn’t financial advice.
Frequently asked questions
Is an RRSP worth it?
It depends on your rate now against your rate at withdrawal. On $90,000 of income a $10,000 contribution saved $2,965 in Ontario in our calculator, but the money is taxed when you take it out.
How much tax is withheld on an RRSP withdrawal?
Outside Quebec the bank withholds 10% up to $5,000, 20% from $5,001 to $15,000 and 30% above $15,000. The real tax is worked out when you file.
Can I use my RRSP to buy a home?
Yes, through the Home Buyers' Plan, which lets you take up to $60,000 and repay it over 15 years.
What happens to my RRSP at 71?
You have to close it, turn it into a RRIF or buy an annuity by the end of the year you turn 71.
What is the RRSP limit for 2026?
The dollar limit is $33,810. Your own room is 18% of last year's earned income, up to that amount, plus unused room, minus pension adjustments.
All rrsp and retirement calculators
- RRSP, TFSA, FHSA and retirement income in Canada
How the RRSP, TFSA and FHSA differ, the 2026 limits, what happens when you withdraw, and where CPP and OAS fit into your retirement income