RRSP PLANNING

Even seasoned Canadians can stumble when it comes to Registered Retirement Savings Plan (RRSP) contributions. Rules change, deadlines creep up, and funding logistics, whether you’re making lump sum contributions or monthly investments, can be confusing. These challenges make RRSP mistakes surprisingly common, even for those who track their finances carefully. From miscalculating your contribution room to overlooking tax nuances, these errors can reduce your tax savings, limit tax-deferred growth, and even trigger unnecessary penalties.

In this guide, we’ll walk through 7 common RRSP mistakes Canadians still make in 2026. For each one, we’ll explain what it is, why it matters for your retirement portfolio, tax situation, and overall financial plan, and how to correct it quickly so you can optimize your contributions, maximize your tax refund, and avoid costly missteps. Whether it involves mismanaging mutual funds, mishandling income splitting, or misunderstanding marginal tax rates, you’ll get practical tips that save time, money, and stress.

Note: This article is intended to provide general information only and is not investment advice. Your personal RRSP contribution room and circumstances may vary, so always verify limits using Canada Revenue Agency (CRA) My Account or consult a professional before taking action.

By the end, you’ll be more informed on how to avoid these pitfalls and take advantage of your RRSP tax advantages for 2026.

7 Common RRSP Mistakes

Even experienced savers can fall into common traps when contributing to an RRSP. From missed deadlines to over-contributing, these errors can affect your tax savings, retirement portfolio, and long-term nest egg. Here are the 7 mistakes Canadians still make in 2026, and how to fix them fast.

1. Over Contributing Beyond Your Room

One of the most common RRSP mistakes Canadians make is over-contributing beyond their available contribution room. The Canada Revenue Agency (CRA) allows a $2,000 lifetime cushion, but any amount above that is subject to a 1% per month penalty until corrected. For example, if you over-contribute $5,000 beyond your limit, you could face $30 in penalties for each month the excess remains in your account (costs that can add up quickly if not addressed).

How to Check Your RRSP Contribution Room

Avoid this pitfall by confirming your available RRSP contribution room before making contributions. You can find this information in CRA My Account or on your Notice of Assessment (NOA) from the previous year. These sources also show carry-forward amounts from previous years, ensuring you don’t exceed your limit.

How to Fix an Over-Contribution

If you discover you’ve gone over, act quickly to reduce your excess. Options include:

• Withdrawing the excess amount immediately, ideally before the end of the month to limit penalties.
• Filing a T1-OVP form with the CRA to report the over-contribution and associated penalty.

Timeline & Documentation Tips

Keep all receipts, confirmations, and withdrawal documentation. This ensures you can track the adjustment and avoid future confusion during tax time. Acting promptly minimizes penalties and keeps your RRSP tax advantages intact.

2. Cutting It Too Close to the Deadline

Another frequent RRSP mistake is waiting until the RRSP deadline to contribute, assuming any payment made on the final day will automatically count. While contributions made in the first 60 days of the following year can still be applied to the previous year’s taxes, timing is crucial. Many Canadians underestimate bank cut-offs, inter-institution delays, and processing times, which can jeopardize tax deductions or delay tax receipts.

Fast Funding Hierarchy

To ensure your contribution counts, choose the fastest method available:

• Instant transfers within the same institution: funds appear immediately.
• Bill payments: usually same-day if submitted before the bank’s cut-off; otherwise, next business day.
• Internal transfers from another institution: typically 2-3 business days.
• Pre-authorized debits (PADs): best for monthly contributions or next year’s regular investing, not last-minute funding.

Proof and Best Practices

Always keep proof-of-payment, such as a screenshot or confirmation number. If possible, contribute earlier in the day to avoid batch processing delays. This ensures the RRSP contribution is recorded properly and that your official receipt reflects the correct tax year.

By planning funding carefully, you avoid last-minute stress, guarantee your tax deduction, and keep your retirement savings on track. Timing matters as much as contribution size.

3. Misusing Spousal RRSP Timing and Income Splitting

A common RRSP mistake involves the timing of spousal RRSP contributions and subsequent withdrawals. While spousal RRSPs are powerful tools for income splitting and reducing marginal tax rates in retirement, the 3-year look-back rule can turn withdrawals into a tax trap.

If the contributing spouse adds funds to a spousal RRSP, and the spouse withdraws money within the same year or the following two calendar years, the CRA attributes the withdrawal back to the contributing spouse. This means the funds are taxed in the higher-income spouse’s hands, potentially negating the tax advantages of income splitting.

How to Fix It

To avoid this mistake, plan your contributions carefully:

• Consider avoiding contributions to a spousal RRSP if you anticipate withdrawals within 3 years.

This ensures that any future withdrawals are taxed in the lower-income spouse’s hands, preserving the tax efficiency of your strategy.

Pro Tip

Keep a clear calendar of past spousal contributions and expected withdrawals. Proper timing helps you leverage income splitting, maximize tax savings, and prevent unintended tax consequences while building a strong retirement portfolio.

4. HBP/LLP Withdrawals After Recent Contributions

A lesser-known RRSP mistake involves Home Buyers’ Plan (HBP) and Lifelong Learning Plan (LLP) withdrawals. Many Canadians assume they can contribute and immediately withdraw without affecting their tax deduction. However, the CRA applies an 89-day rule: any contribution made within 89 days before a withdrawal may not be deductible for the tax year in which the HBP or LLP withdrawal occurs.

This can create confusion for savers who make a lump sum RRSP contribution, intending to claim the tax deduction while simultaneously tapping the funds under HBP or LLP. If overlooked, it may reduce your tax savings and complicate your income reporting.

How to Fix It

• Plan deposit timing carefully: Consider avoiding contributions to your RRSP immediately before an HBP or LLP withdrawal if you intend to claim a deduction for that year.
• Document the Fair Market Value (FMV): Record the RRSP balance before and after contributions to clarify which funds are eligible.
• Keep receipts matched to withdrawals: Maintain precise records of contribution dates, withdrawal dates, and receipts, making tax time straightforward and error-free.

By understanding the 89-day rule and planning contributions accordingly, you can protect your tax advantages, maintain compliance, and continue to build your retirement savings effectively.

5. Assuming Withholding Tax Equals Final Tax

A common RRSP mistake occurs when Canadians withdraw funds and assume the withholding tax automatically settles their tax obligation. Withholding tax is essentially a prepayment, not the final word on your taxes. Depending on your marginal tax rate, the CRA may require you to pay more when you file your income tax return, or you may receive a refund if too much was withheld.

This misunderstanding is particularly risky for higher-income earners or those near the edge of a tax bracket. For example, a withdrawal could push you into a higher marginal tax rate, leaving you with an unexpected tax bill. Conversely, some withdrawals may result in a refund if your actual tax liability is lower.

How to Fix It

• Set aside additional funds when withdrawing, especially if you’re near a bracket threshold, to cover any shortfall when filing.
• Many investors utilize TFSAs for emergency savings because withdrawals are tax-free, whereas RRSP withdrawals are taxable and result in the permanent loss of contribution room.

By understanding the distinction between withholding tax and actual tax owed, you can manage retirement funds wisely, avoid surprises at tax time, and protect your nest egg while taking advantage of your RRSP tax benefits.

6. Ignoring the Age-71 Deadline

One of the most overlooked RRSP mistakes involves the age-71 contribution deadline.

According to Canadian tax rules, your last day to contribute to an RRSP is December 31 of the year you turn 71. After that, your RRSP must be converted to a Registered Retirement Income Fund (RRIF), annuity, or withdrawn as cash. Failing to act in time can result in missed tax-deferred growth opportunities and potentially higher taxable income if funds are withdrawn improperly.

Many Canadians approaching 71 make the mistake of assuming they can continue contributions indefinitely or overlook the need to plan for conversion. This can affect both your retirement portfolio and tax situation, especially if you rely on RRSP tax deductions to lower your taxable income.

How to Fix It

• Year-of-71 Planning Checklist: Confirm your RRSP contribution room, decide on conversion type (RRIF or annuity), and schedule contributions well before the deadline.
• Spousal RRSP Workaround: If a spouse is younger, contributions can often continue to be made to a spousal RRSP until December 31 of the year the younger spouse turns 71.
• Update your financial plan to reflect these changes and ensure a smooth transition from contributing to withdrawing.

By proactively addressing the age-71 rule, you maintain retirement savings efficiency, maximize tax advantages, and avoid costly last-minute adjustments.

7. Leaving Cash Idle or Chasing In-Kind Moves at the Last Minute

A surprisingly common RRSP mistake involves either leaving contributions as idle cash or rushing in-kind transfers of investments at the last minute. Both scenarios can undermine your retirement portfolio and tax advantages.

Idle cash sitting in your RRSP may not seem harmful, but it loses out on compounding and potential growth. Even a few weeks of delay in investing funds can reduce your long-term nest egg, especially when markets are volatile.

Meanwhile, attempting in-kind transfers (moving stocks, bonds, or mutual funds from a taxable account into an RRSP) can create complications. If not executed correctly, it may trigger capital gains or other tax consequences, and processing delays can risk missing the RRSP contribution deadline.

How to Fix It

• Contribute cash first: Ensure the contribution lands in your RRSP before the deadline to secure your tax deduction.
• Invest deliberately afterward: Take time to allocate funds to mutual funds, exchange-traded funds (ETFs), or guaranteed investment certificates (GICs) according to your retirement goals and risk profile.
• Plan in-kind transfers early: If moving investments from a taxable account, initiate the process well in advance to avoid processing delays or unintended taxable events.

By prioritizing cash contributions for last-minute deadlines and planning investment moves ahead of time, you safeguard tax advantages, maximize tax-deferred growth, and keep your retirement savings strategy on track.

Quick Reference: RRSP Penalties & “Gotchas”

Even experienced Canadians can stumble on RRSP rules, so here’s a concise guide to common penalties and pitfalls:

• Over-Contribution Tax: Exceeding your contribution room by more than the $2,000 lifetime buffer triggers 1% per month on the excess. Check your CRA My Account or Notice of Assessment before contributing.
• HBP/LLP 89-Day Rule: Contributions made within 89 days of an HBP or LLP withdrawal may not be deductible for that tax year. Track deposit timing and maintain accurate receipts.
• Spousal RRSP Attribution: Withdrawals made within three years of a spousal contribution are attributed back to the contributing spouse, potentially increasing taxable income.
• Age-71 Rule: RRSPs must be converted to a RRIF or annuity by December 31 of the year you turn 71.
• Withholding ≠ Final Tax: Tax withheld on withdrawals is a prepayment, not the final amount owed. Plan for potential differences, especially near tax bracket edges.

Keep these “gotchas” in mind to maximize tax savings, avoid penalties, and maintain a smooth retirement strategy.

How to Avoid These Mistakes in 5 Steps

Avoiding common RRSP mistakes doesn’t have to be complicated. By following these five practical steps, you can protect your tax savings, maximize tax-deferred growth, and keep your retirement portfolio on track.

1. Confirm Your Contribution Room

Before contributing, verify your RRSP room via CRA My Account or your Notice of Assessment. Include carry-forward amounts from previous years to avoid over-contributing and triggering penalties.

2. Choose the Fastest Funding Method

Use instant transfers or same-day bill payments to ensure your contribution posts before the RRSP deadline. Avoid last-minute delays with inter-institution transfers or pre-authorized debits for next year.

3. Document Contributions & Receipts

Keep screenshots, confirmations, and official RRSP receipts. This helps reconcile tax returns, especially for first-60-days contributions or spousal RRSPs.

4. Avoid 89-Day Conflicts (HBP/LLP Timing)

Plan contributions around withdrawals under the Home Buyers’ Plan or Lifelong Learning Plan to maintain your deduction eligibility.

5. Plan Withdrawals & Invest Intentionally

If withdrawing or reallocating funds, consider tax implications, marginal tax rates, and investment strategy. Contribute cash first for deductions, then invest deliberately.

Following these steps ensures your RRSP contributions are timely, optimized, and aligned with your broader financial plan.

Conclusion: Secure Your RRSP and Maximize Tax Benefits

Avoiding common RRSP mistakes starts with simple habits: verify your contribution room, fund your account early, and plan around timing rules like first-60-days, HBP/LLP withdrawals, and the age-71 deadline.

Remember to contribute before the deadline. Open your RRSP with Questrade to optimize growth and stay on track toward a confident retirement plan.