The importance of Registered Retirement Savings Plans (RRSPs)

February 11, 2026

A Registered Retirement Savings Plan (RRSP) is a Canadian government program with the primary and end purpose of helping Canadians save for their retirement. It has significant tax advantages with the key ones being;

• contributions are deductible from your taxable income which lowers your tax obligation
• gains earned are tax sheltered while in the plan, this takes advantage of compounding the growth

In retirement, when the funds are needed, the amount withdrawn is added to the RRSP holder’s income in the year removed. This is ideally when they are in a lower marginal tax rate (MTR). Outside of federal government programs like the Home Buyers Plan (HBP) or Lifelong Learning (LLP), monies removed are subject to a Canada Revenue Agency (CRA) mandatory withholding tax at the time of withdrawal. This is a pre-payment toward the income tax ultimately owed.

A well-thought-out retirement plan is crucial for financial security to cover future expenses and to help ensure you don’t outlive your savings. RRSPs have a number of distinctive features and benefits that make it a versatile investment tool. Understanding these key characteristics can help with using the RRSP account to its fullest potential within each person’s unique circumstances.

The importance of RRSPs is found through tax savings they can provide for retirement savings. This is a key point to growing the funds and increasing net income after taxes have been paid.

Contributions are tax deductible

Every dollar that is contributed into an RRSP is deductible from the taxable income of the contributor. With the reduction in taxable income the contributor lowers the amount of income tax owing. For individuals in a higher MTR, this can lead to considerable tax savings. RRSP contributions made in the first 60 days of the year can be applied to the current or previous tax year, offering additional flexibility for year-end tax planning.

Tax-deferred growth

Investment earnings including interest, capital gains and dividends received on qualified investments while in the RRSP remain tax-sheltered. Consider contributing to an RRSP early on in your working years for the tax-sheltered growth to compound more effectively over time. Adding small amounts on a regular basis can make a big difference in the long term.

Retirement income supplement

pensions such as Canada Pension Plan (CPP) and Old Age Security (OAS). An RRSP can be converted to a Registered Retirement Income Fund (RRIF) or annuity at which time a minimum percentage must be withdrawn annually. An annuity is a contract with an insurance company where a lump sum payment is made and in return an income stream is received for a set period or for life. This conversion must be completed before December 31st in the calendar year you turn 71, but can be done anytime sooner, even immediately upon retiring. Any amounts removed are added to your taxable income in the year withdrawn. Often an individual is in a lower MTR in retirement while receiving pension income than when employed and in their prime income earning years. This maximizes tax savings creating greater after-tax income.

Carry forward contribution room

Annual RRSP contribution room is accumulated as:

• 18% of your previous year’s earned income (up to the annual maximum as set out through Canada Revenue Agency (CRA))
• minus any pension adjustment (PA)
• plus, any unused contribution room from previous years

RRSP contribution room can be carried forward year-over-year and is not lost if you are unable to maximize your RRSP in a given year. Consider carrying RRSP contribution room forward when earnings increase and you are in a higher MTR. This will increase the percentage of tax relief and increase after-tax earnings overall.

Spousal RRSPs (SRSPs)

A SRSP allows a higher income earning spouse to contribute funds into the lower income earning spouse’s RRSP. The contributor receives the tax deduction while the RRSP holder owns the funds and builds retirement savings. This is especially effective if couples wish to retire before age 65 when pension income splitting is not allowable through CRA rules. Be aware of attribution rules with SRSPs as funds withdrawn from a spousal plan in the year of contribution and in either of the two following years will be attributed back to the contributor.

Income splitting RRIF withdrawals

Spouses over the age of 65 can split up to 50% of qualifying pensions, this includes RRIF withdrawals. The amount that is transferred is deducted from the income of the transferor and included in the income of the transferee. Both spouses must agree to the allocation in their tax returns.

SRSP and RRIF income splitting effectively splits income between spouses in retirement potentially lowering the overall taxes owed by the couple which increases net income.

Customizing your RRSP portfolio

Contributions made to an RRSP can be invested in a variety of qualified different solutions such as mutual funds, stocks, bonds and Guaranteed Investment Certificates (GICs). This allows for choice and flexibility with investment selection. It is essential to understand the features, benefits and risks associated with each asset class to ensure the correct investment is selected to meet your investment objective, risk tolerance and time horizon.

There are two Government of Canada backed specialty programs that allow for withdrawals from RRSPs to finance major life events such as the purchase of a qualifying first home or to finance training or education for you or your spouse or common-law partner.

1. The Home Buyers’ Plan (HBP)
   The Home Buyers' Plan (HBP) is a program that allows first-time home buyers to withdraw from their RRSP to buy or build a qualifying home for themselves or for a specified disabled person. In 2026, the HBP withdrawal limit is $60,000 per participant. The withdrawal from the RRSP under the HBP is not added to the RRSP holder’s taxable income in the year withdrawn and the RRSP issuer will not apply withholding taxes. The HBP allows you to pay back the amounts withdrawn within a 15-year period with the repayment schedule being 1/15 of the amount withdrawn under the HBP.
2. Lifelong Learning Plan (LLP)
   The LLP allows you to withdraw amounts from your RRSP to finance training or education for you or your spouse or common-law partner. The LLP annual withdrawal limit is $10,000, with the total LLP limit being $20,000. You can participate in the LLP again, starting the year after you bring your LLP balance to zero. The withdrawn amounts are not added to the RRSP holder’s income, and the RRSP issuer will not withhold tax on these amounts. Over a period of 10 years, you must repay the amounts you withdrew under the LLP back into your RRSP. Generally, for each year of your repayment period, you must repay 1/10 of the total amount you withdrew until the LLP balance is zero.

Retirement planning is important to help provide financial security later in life. Starting early will give more time to reach goals, making retirement more secure and enjoyable. Understanding the features and benefits of the RRSP investment account will help you to incorporate it into a broader retirement and financial strategy. When paired with other plans such as employer-sponsored pension plans and tax-free savings accounts (TFSA), RRSPs can work together to help fund fixed expenses, unexpected needs like long-term care and lifelong dreams such as spending time with family, travel or hobbies. Each person’s individual needs and family situation are unique and will require a specialized plan. Partnering with a knowledgeable and trusted financial advisor will help you to build your roadmap and create clarity through complex decisions to enjoy your years in retirement.

FirstOntario Credit Union in partnership with Credential Securities and Credential Asset Management Inc. has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Mutual funds and related financial planning services are offered through Credential Asset Management Inc. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.