RRSPs 101

Learn more about Registered Retirement Savings Plan (RRSP).

What is an RRSP?

An RRSP is an account created by the Canadian government to help Canadians save for retirement. As a registered account, RRSPs have rules and regulations around: contributing to an RRSP, how much you can contribute, what investments an RRSP can hold, and withdrawing money from your RRSP.

mature couple relaxing with tablet looking at RRSP

What are the tax-benefits of an RRSP?

  • Tax-deductible contributions: commonly thought of as a way to get tax-refunds. These are a mainstay of RRSPs and part of the reason why they’re so popular. When you make a deposit into your RRSP, the amount comes off your taxable income for the year, and you could receive money back from the government at tax time.
    • Example, if you earned $65,000 last year and you contributed $7,000 to your RRSP, you would only pay taxes as if you earned $58,000. This can result in a much-appreciated tax return at the end of the tax season.
  • Tax-sheltered earnings: the investments in your RRSP grow tax-free. So you benefit from years of compound growth without having the tax-man reaching in while it’s in the account. However, when you retire you will have to pay taxes on the money you withdraw.
  • Tax deferral: When you’re retired you could be earning little to no income, so when you withdraw money from your RRSPs, they will typically be taxed in a lower tax bracket than they would’ve been in your working years.

What to know about RRSP contributions

  • Because of the tax benefits, the government limits the amount you can put into your RRSP. You can deposit 18% of your earned income from the previous year (up to a maximum of $27,830 for 2021).
  • Any leftover room from previous years will carry over indefinitely until you use it

What to know about withdrawals

  • If you make a withdrawal before you retire or directly from your RRSP, you will have to pay tax on the amount you withdraw.
  • Financial institutions will withhold a certain amount of tax directly when you withdraw:
Amount withdrawn Tax withheld Tax withheld (Quebec )
$0-$5,000 10% 20%
$5,000 - $15,000 20% 25%
$15,000 + 30% 30%

Extra benefits of an RRSP

  • The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 from your RRSP tax-free to pay for a home (subject to certain conditions), as long as you re-deposit what you withdrew within 15 years.
  • The Lifelong Learning Plan (LLP) allows you to withdraw up to $20,000 ($10,000 per calendar year) from your RRSP tax-free to pay for their own education (subject to certain conditions), as long as you re-deposit what you withdrew within 10 years.

Investments you can hold in an RRSP

While some think an RRSP is simply a savings account, RRSPs are an incredibly versatile investment account. You can build and diversify a portfolio by investing in RRSP-eligible investment products:

  • Stocks (both Canadian and international)
  • ETFs
  • Options
  • Mutual funds
  • Bonds
  • Gold and silver bars
  • GICs
  • Cash

For a full list of eligible investments, visit the CRA

Benefits of a Questrade RRSP

  • No annual account fee. No opening fees.
  • Hold both Canadian and U.S. dollars in the account at the same time.
  • Open the account in minutes.
  • Contribute to your RRSP quickly and easily online. No need to book an appointment or wait in line.
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  • Why you shouldn’t park money in your RRSP
  • How investing can help you get to retirement
  • The different ways of investing for retirement
A parking meter that reads time expired

When the annual Registered Retirement Savings Plan (RRSP) contribution deadline draws near, many people put money into an RRSP account and give themselves a big pat on the back for taking action in time to claim the contribution on this year’s tax return.

But a good portion of those people “park” the money. In other words, while they do deposit it into an account that is registered, they don’t invest it in something that could earn them healthy returns. Instead, they tell themselves they’ll make the deposit, get their tax slip and figure out how to invest later.

Problem is, often they never get around to it. They intend to, but life gets in the way. So the money languishes — earning less than one percent perhaps, or maybe nothing at all — for months or years. Does this sound familiar?

Parking your money in an RRSP may not be the best thing for you in the long run. We’re going to show you why and what you can do about it.

Parking money is like getting a parking ticket

One of the advantages of RRSPs is that the interest and investment earnings that accumulate inside the account grow tax-free. Yes, they will be taxable eventually, when you withdraw funds from the account. But you’ll likely be earning less at that point so your marginal tax rate will be lower than it is now, and you’ll pay less tax.

In the meantime, you will have all that time during your working years to save and earn, and to let those earnings compound. And as we know, compounding is one of the strongest forces for creating wealth.

So, when you park money and don’t take advantage of higher earnings over many years, you lose all that compounding power. Instead of creating a force like Niagara Falls, you’ve reduced it to a small waterfall. Nice — but not nearly as powerful.

Now, you might be thinking: So what? At least I’m saving something.

That brings us to another problem — when you park your money, it’s actually getting devalued by inflation. And the longer you leave it in, the less it’s worth. That’s because inflation erodes your purchasing power.

Here’s a simple example. Let’s say you put aside $100 and park it in a non-registered chequing account earning 0% interest. And let’s say the inflation rate is 2%. If you take it out in a year to buy something, the purchasing power of that $100 is actually just $98. In effect you’ve lost $2. Leave it in for 10 years and, assuming inflation stays a consistent 2% per year, you’re left with only $80 in purchasing power. And in 30 years, you can buy just $40 worth of goods.

So parking your money feels like saving but it isn’t really. It’s like leaving your car overnight and coming back to a parking ticket.

TFSAs feel the loss too

Many people use Tax-Free Savings Accounts (TFSAs) to save for retirement, and it’s just as harmful to park your TFSA savings — maybe more so.

Like an RRSP, money in a TFSA can grow tax-free. But when you take money out of a TFSA it isn’t taxed. All the earnings you’ve accumulated over the years are yours to withdraw tax-free.

So if your TFSA is earning little or nothing, you’re throwing away years of tax-free compounding.

Investing your retirement savings is like shifting your money from “Park” into “Drive.” And it’s easier than you might think.

Shifting from Park to Drive

Many people who want to invest in their RRSP or TFSA are thrown into mutual funds. And, while mutual funds have benefits over parking your money, they also come with a hefty price tag which can eat into your retirement savings. This has investors searching for alternatives and discovering a new way to invest for retirement: ETFs (exchange-traded funds).

ETFs have been growing in popularity. And for good reason. They have low fees compared to many other investment options (including mutual funds) while still allowing you to invest in the market.

What exactly is an ETF?

  • An ETF is a basket, or collection, of investments, which can include stocks, bonds or commodities.
  • An ETF’s holdings can track an index — in other words, the basket has a similar makeup to the index, so its performance should be similar to that index.
  • An ETF can be structured in any number of ways — for example, it could hold only Canadian investments, or it could hold a mix of Canadian and international investments, or it could hold only fixed income instruments.
  • ETFs are traded on a stock exchange, and the price fluctuates as it is bought and sold.

Investing in ETFs can be as easy as parking your money

At Questrade, we’ve made it easy for you to invest in ETFs with Questwealth Portfolios™. Each portfolio combines a number of different ETFs into a single investment portfolio.

How do you know which Questwealth Portfolio is right for you? Well, there’s an easy online questionnaire, which asks you questions around your goals and comfort with investing. Then you’re given a recommended portfolio based on the answers you provided. (Learn more about Questwealth Portfolios.)

Questwealth Portfolios help you keep more of your money in your investment accounts, with some of the lowest fees you’ll find anywhere. That can make an enormous difference to how much you have at retirement.

TIP: See how much of a difference a Questwealth Portfolio could make to your retirement savings, based on your risk level, time horizon and how much you save. Find out now!

Take more control of your investing

Interested in a more hands-on approach to your investments? With a Questrade self-directed account, it’s easy to trade in stocks, precious metals, bonds, GICS — and yes, ETFs.

Here are a few simple tips to help you get started:

  • Start with an amount you’re comfortable with. The best way to learn is with an amount that isn’t going to get your blood pumping. Over time, as you gain confidence you can add to your portfolio.
  • Before you invest, make sure you understand the fees. We keep our self-directed investing fees listed publicly so anyone can see them and make an informed decision on how to invest their money.
  • The best way to grow your investment confidence is to learn how to invest. You can learn more about self-directed accounts, and the types of accounts (such as RRSPs) that you can set up by visiting our self-directed accounts page. We’ve got helpful articles and a video on how to make a trade.

Ready? Set? Invest!

By this point, we hope you’re feeling excited and confident about starting to build retirement wealth by investing. The next step is simple. Open your account today — and start building that big, beautiful retirement fund.

 

If you enjoyed this post, please consider sharing it on Facebook or Twitter!

P.S. We’d love to meet you on Twitter or on Facebook

The information in this blog is for information purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.

The Questwealth Portfolios example is not indicative of future values or the performance of any Questwealth Portfolios client or model portfolio. Actual results may vary.

  • Key differences between a TFSA and an RRSP
  • Determine which account best suits your needs
  • How to get started with either account
woman painting the wall

So you’ve started thinking about investing for your future, but you’re not sure where to start. With so many different options out there, it can be easy to get overwhelmed by all the acronyms and percentages being thrown your way.

Most financial institutions offer two very popular options for saving: TFSAs (tax-free savings account) and RRSPs (registered retirement savings plan). Getting started with either of the two is a great decision, but each account comes with its own pros, cons, and details worth knowing.

Depending on your current needs and goals, one account may suit you better than the other right now. With that, let’s delve into each one so you know where to put your dollars first.

What’s the difference between a TFSA and RRSP?

While they both offer valuable saving opportunities, TFSAs and RRSPs can also hold a variety of investments alongside your cash. That being said, these two accounts still have a few notable differences between them. We’ll cut to the chase with some of the keywords you might be looking for:

TFSA RRSP
Can be made tax-free at any time without penalties.
Withdrawal will be added to your taxable income for the year, and you’ll pay taxes on that amount unless it’s going towards a Home Buyer’s Plan or Lifelong Learning Plan (see below for details).
Contributions made to a TFSA are not eligible for income tax deductions.
RRSP contributions can be written off your taxable income for the year.
Can earn capital gains and dividends tax-free* on investments like stocks, ETFs, etc.
No taxes on investment profits until you make a withdrawal.
Once you turn 18, you start receiving a yearly limit of how much you can contribute to your TFSA. You can learn more about a TFSA’s contribution room here. 
Can contribute up to 18% of your earned income from the previous year. Can make contributions until the end of the year you turn 71. Unused contribution room carries into the following calendar year.

*U.S. dividends will be subject to a withholding tax.

Withholding tax is a tax placed on cash dividends paid to Canadian investors for tax purposes. While it doesn’t apply to RRSPs, TFSAs have a 15% withholding tax on U.S. company dividends, as required by the IRS.

Which account is right for me?

As previously mentioned, investing in either account is a great call for your future. But depending on where you are right now financially, one might be a better fit than the other.

If you’re looking to tuck money away but can acknowledge that you may need to dip into your savings from time to time (life loves to throw pricey curve balls sometimes), you’d probably be best off with a TFSA. It’s also a great option if you want to save for short-term goals, like taking a trip or putting a down payment on a car. It gives you the opportunity to save and invest, meaning your money can potentially grow on its own without being locked in.

On the other hand, if you’re in a financial position to put money away for a long-term period, an RRSP may suit you better. Depending on your yearly income, the tax deductions that come with RRSP contributions could prove to be very beneficial in the short-term. Plus, an RRSP grants you access to the Lifelong Learning Plan and Home Buyer’s Plan, which respectively allow you to make tax-free withdrawals for going to school or a down payment on your first home up to a maximum amount.

Want more insight on choosing the right account for your investments? Take an in-depth dive with our blog to see which account will best suit your needs. If you want a bit more info on TFSAs and RRSPs, we’re happy to provide you with it through the links below:

Learn more about TFSAs Learn more about RRSPs

How do I get started?

Whichever account you choose, Questrade is here to support you along the way. You can open an account entirely online, and it only takes a few minutes to get started. Whenever you’re ready to jump in, we’re happy to help you invest.

Choose your account

If you enjoyed this post, please consider sharing it on Facebook or Twitter!

P.S. We’d love to meet you on Twitter or on Facebook

The information in this blog is for information purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.

  • When is the contribution deadline, how do contribution limits work?
  • What is an RRSP and how does it work?
  • Am I limited to one? Is there any rule against having multiple
mother and child working on the table

Between work, cooking healthy meals for the family, and taking Sidney Jr. to hockey 3 times a week, you barely have time to sleep let alone think about retirement. So here’s everything you need to know for the 2022 RRSP season so you can get your ducks in a row and maybe, just maybe, leave yourself enough time for a nap.

The future is now. As in, I’ve got stuff to do right now, I can’t worry about the future. Here’s a quick guide to help you feel good about your future retirement so you can get back to whatever your day throws at you.

The important things to know this year

When is the RRSP contribution deadline?

March 1, 2022

What is the RRSP contribution limit?

The short answer: the 2021 RRSP contribution limit is 18% of income you reported on your Canadian tax return from the previous year, up to a maximum of $29,210. The 2020 maximum was $27,230.

The long answer: the total amount you can contribute is based on your contribution limit for the current year AND any unused room from previous years. The CRA lets you carry forward unused contribution room indefinitely.

Example

If you earned $50,000 pre-tax income in 2021, your contribution limit would be:

$9,000 ($50,000 x 0.18) + any unused contribution room from previous years.

You can find your remaining contribution limit on your notice of assessment or logging into your CRA my account.

Moving your RRSP

While the deadline and contribution limit rules are universal, not all RRSPs are created equal. Many are bloated with fees that eat into your retirement savings. If you find your RRSP is weighed down by high fees, you can move it to another financial institution. Many Canadians assume there are tax penalties to do so, but that’s a common misconception. There are no tax penalties for moving an RRSP from one financial institution to another so long as you transfer between registered accounts of the same type (such as from an RRSP to another RRSP).

However, you may be charged a transfer-out fee for leaving. This transfer fee is usually covered by the financial institution you’re bringing your RRSP to. (Depending on the transfer, any fees for selling stocks in your account usually aren’t covered.)

You can move an account from another Canadian broker to Questrade and we’ll pay your transfer out fees up to $150. No minimum balance needed. Learn more.

Having multiple RRSPs

If you’re interested in a lower fee alternative, but aren’t ready to shift your entire RRSP, you can open a second RRSP. As long as you don’t go over your total contribution room, there’s no rule against having multiple RRSPs. If you have a feeling your RRSP isn’t at the right place to get you to retirement, you can open a Questrade RRSP account. Don’t have the time to switch your existing one over right away? Simply open a new RRSP and deposit your contribution there.

Reminder: when you open a Questrade account in 2022, we’ll donate a day’s worth of meals to Food Banks Canada. Just another way to add to the benefits of an RRSP.

Learn more about Questrade RRSPs

What do I need to open an account?

Opening an RRSP at Questrade is fast, easy and can be done entirely online.

You’ll need your SIN card and a photo ID (like a driver’s licence). And you’ll have to fill out some forms registering the account with the CRA.

There are two ways to invest with Questrade:

  • Self-directed investing: Build your own investment portfolio, buying and selling the stocks, options, ETFs and more yourself. Get Details
  • Questwealth Portfolios: Get a pre-built lower-fee portfolio designed by experts to help you achieve your financial goals faster. Get details

An RRSP account can be opened no matter how you want to invest.

Open an account

That’s it. You’re ready for RRSP season 2022. Now get going, the contribution deadline will be here quicker than you think.

If you enjoyed this post, please consider sharing it on Facebook or Twitter!

P.S. We’d love to meet you on Twitter or on Facebook

The information in this blog is for information purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.

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