Registered Retirement Savings Plan (RRSP)

An RRSP, or Registered Retirement Savings Plan, is a tax-advantaged investment account available to Canadian residents, designed to help individuals save for retirement. Contributions to an RRSP are tax-deductible, and investments within the account grow tax-free until withdrawal, typically during retirement, at which point they are taxed as income.¹

An RRSP allows individuals to contribute a portion of their income to the plan, with contributions being tax-deductible.¹ These contributions can then be invested in a variety of investments such as stocks, bonds, mutual funds, or GICs. Any investment income earned within the RRSP grows tax-free.²

Over time, these investments can accumulate and grow, helping individuals build their retirement savings. When funds are withdrawn from the RRSP, typically during retirement, they are subject to income tax at the individual’s applicable tax rate.

RRSPs provide a tax-efficient way to save for retirement, as contributions reduce taxable income in the year they are made, and investment growth is sheltered from taxes until withdrawal.¹

Canadian residents who have earned income, have filed a tax return, and have a valid Social Insurance Number (SIN) may open an RRSP.

To open an RRSP through UCU, the first step is to become a member of our credit union. Once you’ve joined UCU, you have the option to open an RRSP by either visiting one of our conveniently located branches or reaching out to the UCU Contact Centre at 1.800.461.0777. Our friendly staff will guide you through the process and assist you in selecting the best RRSP option to suit your financial and retirement goals.

Your contribution limit is based on the maximum annual contribution room set by the Canadian government, your previous tax year’s earned income and any unused contribution room from previous years. The contribution limit is determined by the Canada Revenue Agency (CRA). To determine how much contribution room you have, review the Notice of Assessment you receive from the Canada Revenue Agency (CRA) after filing your taxes. It states your contribution room for the current tax year. You can also call the CRA Tax Information Phone Service or log into CRA My Account. You can also consult with a UCU Wealth Strategies advisor.

You can withdraw from a variable RRSP at any time, but withdrawals are subject to withholding tax except for specific circumstances such as the Home Buyers’ Plan (HBP) or the Lifelong Learning Plan (LLP).^1,3

Three benefits of an RRSP include:¹

1. Tax-deferred growth: Investments held within an RRSP grow tax-free until withdrawal, allowing for greater potential growth over time.
2. Tax deduction: Contributions to an RRSP are tax-deductible, reducing taxable income and potentially lowering annual tax liabilities.
3. Retirement income: RRSPs provide a reliable source of income during retirement, helping individuals maintain their standard of living once they stop working.

A Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA) are both types of tax-advantaged registered plans available to Canadians, but they serve different purposes and have distinct features:

RRSPs are primarily intended for retirement savings. They offer tax benefits to encourage Canadians to save for retirement.

• Tax Treatment:¹ Contributions to an RRSP are tax-deductible, meaning you can deduct the amount contributed from your taxable income, potentially reducing the amount of income tax you owe in the current tax year. However, withdrawals from an RRSP are taxed as income in the year they are withdrawn.
• Contribution Limits:¹ Contribution room is based on earned income and is subject to an annual limit set by the Canadian government. Unused contribution room can be carried forward indefinitely.
• Withdrawal Restrictions:^1,3   Withdrawals from an RRSP are subject to withholding tax and can generally only be made without immediate taxation under certain conditions, such as for the Home Buyers’ Plan (HBP) or the Lifelong Learning Plan (LLP).

TFSAs are flexible savings accounts designed to help Canadians save money for any purpose, whether it’s short-term goals like a vacation or long-term objectives like retirement.

• Tax Treatment:⁴ Contributions to a TFSA are not tax-deductible, meaning you cannot deduct them from your taxable income. However, any investment income, including capital gains and interest earned within the account, is tax-free. Additionally, withdrawals from a TFSA are tax-free and do not affect your eligibility for government benefits or tax credits.
• Contribution Limits:⁴ Contribution room accumulates each year for Canadian residents who are at least 18 years old (19 years old in some provinces). The contribution limit is set annually by the government, and unused contribution room can be carried forward indefinitely.
• Withdrawal Flexibility:⁵ Unlike RRSPs, withdrawals from a TFSA can be made at any time, for any reason, without tax consequences. Also, the amount withdrawn is added back to your contribution room in the following calendar year.

RSP and RRSP both refer to retirement savings plans in Canada, but they have different meanings. RSP is a broad term referring to retirement savings plans in general, RRSP specifically refers to the registered retirement savings plan with specific tax advantages governed by Canadian tax laws.

Non-residents cannot contribute to an RRSP. Contributions are limited to Canadian residents with earned income who have filed a tax return.¹ If you are planning a move to Canada and become a resident, you may then open an RRSP.

If you overcontribute to an RRSP (Registered Retirement Savings Plan), you may face penalties from the Canada Revenue Agency (CRA). The penalty is a 1% tax per month on the excess contribution amount until it’s withdrawn or absorbed by your unused RRSP contribution room. It’s important to monitor your RRSP contributions to avoid exceeding your contribution limit. Consulting with a UCU Wealth Strategies advisor is recommended for guidance on resolving RRSP overcontributions.

Yes, part or all of your RRSP deduction limit can be contributed to RRSP’s for your spouse or common-law partner. A spousal RRSP allows one spouse to contribute to an RRSP in the name of their spouse. The contributing spouse receives the tax deduction for the contribution, but the funds belong to the spouse who owns the RRSP.

Transferring funds to a spouse’s RRSP can be beneficial for income splitting in retirement. It allows couples to equalize their retirement income, potentially reducing their overall tax burden.

It’s important to note that once the funds are contributed to the spousal RRSP, they belong to the receiving spouse. Withdrawals from a spousal RRSP are subject to the three-year attribution rule. If you have contributed to any spousal plans in the year of withdrawal or in either of the two preceding years, the lesser of the funds withdrawn or the amount you contributed during this period will be taxable in your name, as the contributor.

It is also important to keep in mind that the features, benefits, contribution limits, rules, and applicable taxes for registered accounts are determined by the Government of Canada and may change from time to time. Contact UCU directly to consult with a financial advisor or review the current guidance from the Canada Revenue Agency (CRA) and Income Tax Act (Canada).

Yes, there is a tax on RRSP withdrawals. When you withdraw funds from your RRSP, the amount withdrawn is considered taxable income in the year it is withdrawn. This means that you must report the withdrawal as income on your tax return, and it will be subject to regular income tax rates.

Your unused RRSP contribution room is carried forward indefinitely.¹ This means you can use them to reduce your taxable income in future years, up to your contribution room. The Canada Revenue Agency (CRA) keeps track of your RRSP contribution room on your Notice of Assessment each year. This amount reflects how much you can contribute to your RRSP in a given year and claim a tax deduction.