A Registered Retirement Savings Plan (RRSP) is a plan that you open, and registered with Canada Revenue Agency, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan.

You can open a RRSP at your bank, or investment advisor.

Should I Use a RRSP?

Yes, if:

  • You want to save for your retirement.
    • NOTE: The government limits how much you can contribute each year to your RRSP; check your Notice of Assessment to determine your contribution room.  You pay tax on any money you take out of your RRSP, so a RRSP is not a good way to save for day to day expenses.  See our section on how to Manage your Money for advice on how to manage your monthly expenses.
  • You are saving for a down payment on a house; your money will earn interest tax free, and you can withdraw up to $25,000 to use towards buying a home.  Certain conditions apply, and you must then repay the money you have borrowed from your RRSP or pay additional tax in future years.

However, there are two cases where we recommend that you do NOT contribute to an RRSP:

  • If you are currently bankrupt, Hoyes Michalos will file your tax refund for the year of bankruptcy, so if you filed bankruptcy in 2018, you will lose all tax refunds for the entire 2018 year.  So it may not make sense to contribute to an RRSP during the year of bankruptcy, because any additional tax refund you generate will be distributed to your creditors.  If you have savings, keep them in your savings account or open a TFSA, and then consider contributing to an RRSP next year (starting in 2019 in this example).
  • If you don’t have extra cash each month, contributing to an RRSP should not be a priority.  Your goal should be to get caught up on all of your monthly bills (like rent and utilities), then have some money in an emergency fund, and only then should you start contributing to an RRSP.  If you have extra cash and are caught up on your monthly bills, consider making advance payments on your proposal or bankruptcy to avoid any future problems; only when you are ahead on all of your payments should you start contributing to an RRSP.

BONUS TIP: If your employer has a company matching plan (where they will contribute to an RRSP if you contribute), consider joining, because it’s free money (subject to the two warnings above).

Your trustee or credit counsellor can advise you on whether or not an RRSP makes sense in your situation.


Government of Canada website explaining RRSPs

Government of Canada website explaining the Home Buyers’ Plan