Planning ahead is a smart way to grow your money and reduce your taxes, and the Registered Retirement Savings Plan (RRSP) helps Canadians do just that. This plan is made by the Canadian government to support people in saving for retirement, while also giving them a way to lower the amount of tax they owe. The RRSP lets you invest your money and only pay taxes on it when you take it out later, usually after you retire.
The good news is that RRSP contributions are tax-deductible. This means if you add money to your RRSP before the yearly deadline, you can claim a deduction when you file your taxes. This could give you a bigger tax refund or reduce how much you owe. But there is a deadline you should remember: for the 2024 tax year, you must contribute by March 3, 2025.
Missing this date means your contribution will count for the 2025 tax year instead. That’s why it’s important to understand how RRSPs work, how much you’re allowed to contribute, and how to avoid penalties. This guide covers everything you need to know to make the most of your RRSP before the deadline.
What is an RRSP and Why It Matters
An RRSP (Registered Retirement Savings Plan) is a savings account registered with the government. It’s made to help Canadians save money for retirement while enjoying tax benefits. Here’s why RRSPs are helpful:
- Contributions Lower Your Taxes: When you put money into an RRSP, it reduces your taxable income.
- Investments Grow Tax-Free: The money you earn from RRSP investments (like interest, dividends, and capital gains) isn’t taxed until you withdraw it.
- Many Investment Options: You can use your RRSP to invest in stocks, mutual funds, GICs, and more.
This makes RRSPs better than regular savings accounts where your earnings are taxed every year.
Final Day to Contribute for the 2024 Tax Year
The deadline to make RRSP contributions for the 2024 tax year is March 3, 2025. Any money you add by this date can be included in your 2024 tax return.
If you wait until after March 3, 2025, your contribution will only count for the 2025 tax year. Also, if you turn 71 in 2025, your last chance to contribute to your personal RRSP is December 31, 2025. After that, you’ll need to switch your RRSP to a Registered Retirement Income Fund (RRIF) or take the money out.
How to Know Your RRSP Contribution Limit
To avoid penalties, it’s important to know how much you’re allowed to contribute. You can find your RRSP contribution room by:
- Logging into the CRA My Account online.
- Checking your latest Notice of Assessment (NOA).
- Calling the CRA’s tax information service.
Staying updated helps make sure you don’t go over your limit and get fined.
2024 Contribution Limits Explained
The maximum amount you can contribute to your RRSP in 2024 is $31,560, or 18% of your 2023 income, whichever is lower. If you haven’t used your full contribution room in past years, you can carry that amount forward.If you contribute more than $2,000 over your limit, the CRA charges a 1% penalty each month on the extra amount.
Smart Tips to Boost Your RRSP
Here are simple ways to make the most of your RRSP:
1. Start Early
The sooner you contribute, the more time your investments have to grow with compound interest.
2. Make Regular Contributions
Setting up automatic monthly deposits keeps your savings on track and avoids last-minute stress.
3. Use Employer Matching
If your job offers to match RRSP contributions, take full advantage—it’s like getting free money.
4. Carry Forward Extra Room
Didn’t use your full limit this year? Save that unused room for future years when your income is higher.
5. Pick Growth Investments
Don’t just leave cash in your RRSP. Consider putting your money into mutual funds, ETFs, or stocks to grow it faster.
When to Choose RRSP Over TFSA
You should focus on RRSPs when:
- You make more than $50,000 a year.
- You plan to save for retirement only.
- Your employer matches RRSP contributions.
When TFSA Might Be a Better Choice
A TFSA may suit you more if:
- You have a lower income and won’t benefit as much from tax deductions.
- You need access to your savings for emergencies or short-term goals.
- You want to avoid taxes on withdrawals completely.
How to Avoid RRSP Penalties
If you contribute more than the allowed limit (plus $2,000 buffer), you will face a 1% monthly penalty. Here’s how to stay safe:
- Always check your contribution room through CRA.
- If you overcontribute, withdraw the extra money quickly or file a T3012A form with CRA to fix the mistake.