RRSP vs. RSP in Canada – What’s the Difference?

While you are creating a financial plan for your future retirement, it’s essential to know your options. You’ve probably also heard about RSP and RRSP’s and may have even heard them getting used interchangeably.

While they are similar, they aren’t the same thing. A Retirement Savings Plan (RSP) gets used to save for retirement with several various accounts. On the other hand, a Registered Retirement Savings Plan (RRSP) is a tax-sheltered account created to help you with your retirement savings. An RRSP is one of the many accounts that fall under the RSP umbrella.

In essence, an RRSP is a type of RSP, but an RSP isn’t the same as an RRSP.

Let’s take a look at the similarities and differences between an RSP and RRSP and how they can benefit you at retirement.

What is an RSP Account?

An RSP is an investment made up of your retirement savings. They can include an RRSP, an Employer Pension Plan (RPP), a non-registered savings account, and a Tax-Free Savings Account (TFSA).

Can Income Tax be Claimed on an RSP?

Depending on where you invest your money, you can claim income tax on your RSP. You can receive a tax deduction when you contribute to an RRSP, reducing your net income by your contribution amount. However, not all RSP contributions allow for a tax break claim.

An excellent example of this would be your TFSA contributions. There are no tax benefits immediately as you are contributing towards the TFSA with your already taxed income. Tax advantages come when you withdraw from the account, as your gains and withdrawal amounts are tax-free.

There are no tax advantages on the contributions towards a non-registered investment. Therefore, most investors will first max out their TFSA and RRSP before opening a non-registered savings account. There are, however, tax benefits on the capital gains of a non-registered RSP, where you only get taxed at 50% of your marginal tax rate.

RPP contributions impact your RRSP contribution room through a pension adjustment (PA). Every year, Canada Revenue Agency (CRA) will advise you of your maximum RRPS contribution that can get made every year. This gets done through the T4 slip, where you report your pension contribution and adjustment and get submitted to CRA.

What to Know About an RRSP

An RRSP is one of the popular forms of retirement savings amongst Canadians. They refer to a particular type of government-sponsored investment where your contributions are tax-deductible. Your tax savings will be reliant upon your overall income and marginal tax rate.

A benefit of the tax deductions on contributions lies in the fact that you don’t have to claim any deductions in that specific year. Instead, you can wait to claim the deduction when you’re in a higher tax bracket.

  • An RRSP also serves as a tax shelter, as the funds within the account grow tax-free until you make a withdrawal, generally at retirement.
  • To further benefit from tax savings, you can contribute to your spouse’s RRSP in their name.
  • If you’ve earned an income in Canada, you should file a tax return to begin building your RRPS contribution room.
  • Up to 18% of your previous year’s income can get contributed, with an annual maximum of $27,830 for the year 2021. Any unused contribution room can get carried over to the following year if you don’t use up your entire contribution room for that year.
  • You will be liable to a 1% penalty per month for excess contribution amounts if you over-contribute. Fortunately, the Canadian government does allow for a cumulative lifetime total of $2,000 that can get over-contributed without a tax penalty.

An RRSP can hold several types of assets, including:

  • GICs
  • Bonds
  • Stocks
  • Savings accounts
  • Exchange-Traded Funds (ETFs)
  • Mutual funds

You can get penalized with tax if you withdraw from your funds before you retire, as an RRSP intends to be a source of income at retirement. There are exceptions with the Lifelong Learning Plan (LLP) and the Home Buyers Plan (HBP), as they allow a certain amount to get borrowed tax-free to help you pay for post-secondary education and buying your first home.

What Happens at Retirement

Contributions towards an RRSP end on December 31st of the year in which you turn 71 years old. Your RRSP must then get converted into a Registered Retirement Income Fund (RRIF) the year that you turn 71 years of age.

You will still get subjected to income tax should you make any withdrawals from your RRSP and RRIF.

Why Should You Contribute Towards an RRSP?

There are two significant reasons why you must contribute towards an RRSP.

#1: When your employer matches your contributions

Some employers will match your contributions towards an RRSP, with some matching up to 3% of your annual salary. Take advantage of this if your employer offers a matching program of any kind.

#2: Lower tax rates at retirement

While you’re at a higher tax rate now, you could be at a lower tax rate at retirement when it’s time to withdraw from your RRSP. So, your investment will have tax-free growth until retirement when you withdraw, and you’ll get taxed at a lower rate.


Now that you know the distinction between an RSP and an RRSP, you will learn to not refer to them as the same investment but rather that an RRSP falls under the umbrella of an RSP.

No matter how you choose to invest for retirement, the golden rule is to start early to benefit from compound growth.

Diversify your portfolio by taking out more than one savings account for retirement, knowing that your nest egg will take care of you in your golden years. Take advantage of the tax benefits of the various investment accounts available to Canadians.

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Jean-Maximilien is an expert in Canada and France about Loyalty programs, Credit cards and Travel. He is the Founding President of Milesopedia.

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