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For many immigrants, the first few years are usually about paying rent, finding reliable childcare, making sure you have a store where you can find foodstuff native to your home country, and figuring out how the tax system works. Retirement is the last thing on your mind, and acronyms like RRSP sound like something to be dealt with at some point in the future.
But time flies. Your income starts to grow. That tax line item seems to keep getting larger and larger every year. And suddenly, you find yourself asking the same question many Canadians ask:
Why does it feel like so much of my money disappears to taxes?
This is where that darned acronym everyone can’t seem to stop talking about strolls into the conversation; the RRSP. A financial tool that works best when you understand how it fits your specific situation.
Below, you’ll find all you need to know to make the best of the RRSPs.
So, What Does an RRSP Actually Do?
An RRSP (Registered Retirement Savings Plan) is a tax-deferred account. Deferred because you aren’t avoiding taxes forever, moving income into the RRSP means you are choosing when to pay them.
When you contribute to an RRSP:
What’s deducted? You subtract that contribution from your taxable income today.
How does it grow? The money grows tax-deferred inside the account (you don't pay tax on interest or capital gains yearly).
What’s the best financial strategy? You pay tax later when you withdraw. The goal is to contribute while you are in a high tax bracket and withdraw when you are retired and in a lower bracket.
Pro Tip: Don't treat your tax refund as “free money” for a vacation. To maximize the RRSP, reinvest that refund. This allows you to earn interest on the government’s portion of your money for decades.
RRSP Contribution Limits (2026)
You can’t contribute an unlimited amount. For the 2026 tax year, your RRSP contribution limit is the lesser of:
$33,810, or
18 percent of your earned income from 2025.
For the “newcomer”: Your limit is based on your previous year's Canadian income. If you arrived in Canada in late 2025, your 2026 limit might be very small, even if you have a high salary now. Always check your Notice of Assessment from the CRA before contributing to avoid over-contribution penalties.
Spousal RRSPs and Family Tax Planning
A Spousal RRSP allows the higher-income spouse to contribute to an account in the lower-income spouse’s name.
What’s the benefit? The higher earner gets the immediate tax deduction.
What happens in the future? When the money is withdrawn in retirement, it’s taxed in the lower earner's hands, likely at a much lower rate.
What’s the rule to keep in mind? Keep in mind the 3-year attribution rule. If the lower-income spouse withdraws funds within three years of a contribution, that income is taxed back to the contributor, not the person who withdrew it.
RRSPs and the Canada Child Benefit (CCB)
RRSPs are a hidden gem for families because the CCB is an “income-tested” program. This means the more you earn, the less you get. However, because an RRSP contribution lowers your Adjusted Family Net Income, it can actually trigger a higher CCB payment.
For example, if Sarah and James have four children and lower their taxable income by $30,000 through RRSPs, they don't just save on taxes; they might see their monthly CCB checks increase significantly. It’s one of the few ways to effectively “get paid” by the government for saving for your own retirement.
Buying Your First Home: The FHSA + RRSP Combo
If you are saving for a home, the RRSP isn't your only (or even best) option anymore.
The FHSA (First Home Savings Account): This is the "gold standard." You get a tax deduction for contributing (like an RRSP), but the withdrawal is completely tax-free if used for a home (unlike an RRSP, you never have to pay it back). The 2026 annual limit is $8,000.
The Home Buyers’ Plan (HBP): You can also withdraw up to $60,000 from your RRSP for a down payment. However, this is essentially a 15-year interest-free loan to yourself that you must pay back.
Pro-Tip: Smart buyers maximize their FHSA first, then use the RRSP HBP to top up their down payment.
Early Withdrawals
Life happens, and sometimes you need cash. But taking money out of an RRSP early (for reasons other than a home or education) is expensive:
Withholding Tax: The bank will immediately take up to 30% of your withdrawal and send it to the CRA.
Lost Room: Unlike a TFSA, once you withdraw from an RRSP, you lose that contribution room forever. You don't get it back next year.
RRSPs Are Not for Everyone
RRSPs are most effective for middle-to-high-income earners. If you are currently in a low tax bracket, contributing to an RRSP might be a mistake. Why? Because you’ll get a small tax break now, but you might pay a higher tax rate when you withdraw it later, or worse, the withdrawal could claw back your future government benefits like Old Age Security (OAS).
For those starting out at lower income levels, the TFSA (Tax-Free Savings Account) is often a better first step.
Listen to the Thriving Immigrant, a podcast by Paul Adeyeye
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RRSPs are a great tool for your retirement fund, family planning, buying a home, and tax optimization. But they aren’t one-size-fits-all. The math depends on your income, your family size, and your home-ownership goals.
Used properly, RRSPs make the Canadian tax system work for you. Used blindly, they can lock your money away at the wrong time. Know your bracket, know your limits, and always have a plan.
This article is for educational purposes only. Please consult your financial advisor for financial plans tailored to your particular situation.
