All the Numbers

RRSP room, deduction and withdrawals

From the All the Numbers wiki · Savings accounts

A registered retirement savings plan (RRSP) lets you deduct what you put in and pays tax only when money comes out. How much you may deduct is set by room, which depends on your earnings, not on a fixed yearly allowance as with the TFSA. The deduction is worth the marginal rate you would otherwise have paid on that income.

The rules

  • Room accrues at 18% of the previous year's earned income, capped at the annual dollar limit, and unused room carries forward indefinitely.[1][2]
  • A contribution is deducted from taxable income for the year. A contribution made in the first 60 days of the next year may be deducted against the earlier year.[3] The deduction is a choice: a contribution not deducted can be deducted in any later year, within the deduction limit.[4]
  • A withdrawal is taxable income in the year it is taken, on top of everything else you earn, and the institution withholds tax at source.[5]
  • No contributions after the end of the year you turn 71, when the plan must wind up: the money is withdrawn, turned into an annuity, or moved to a RRIF.[6] See RRIF minimum withdrawals.
  • Going over room is allowed by a $2,000 cushion for adults, and anything beyond it is taxed at 1% a month.[7][8] See over-contributions.

What the engine does

  • Accrues room per person from the plan's own incomes: each year's addition is 18% of the previous year's earned income (employment, net rental and self-employment income assessed in the plan, never below nil), up to the dollar limit, less the previous year's pension adjustment if you are in a workplace pension and entered it (box 52 of your T4). The plan takes that figure to rise with your salary and counts only the months you still work in the year you retire.[9] The dollar limit is a published figure for 2026 and for 2027 ($35,390, set a year ahead because it is the previous year's money purchase limit),[10] and is projected after that with average wages, as the law indexes it: the plan's inflation plus 0.8% a year.[11] See self-employment income and workplace pensions.
  • Carries room forward and trims a contribution that would exceed it, rather than over-contributing; what the room refuses stays in cash.[12]
  • Can deduct a January or February contribution against the previous year, refunding the difference with the following April's settlement.[3] All the Numbers dates every contribution to the month it is made and does not ask for this choice, so a plan does not use it.
  • Carries a deduction forward when it would save nothing this year. Each December it claims only as much of the year's RRSP contributions, and of any carried from earlier years, as still lowers that year's tax. The rest waits for a later year, for example the year after a home sale filled years of room at once, or a year with little income.[4] It weighs tax only: a smaller deduction can raise net income and trim a benefit such as the GIS, which it does not weigh.
  • Values the deduction as a refund the following April, priced at that person's marginal rate, together with any FHSA deduction on the same income.
  • Taxes withdrawals at the owner's own rate, and treats withholding as an approximation: the exact schedule depends on the size and timing of each withdrawal.
  • Assumes a starting deduction limit if you do not enter the figure from your notice of assessment: one year's addition, 18% of your current salary treated as last year's earned income, up to the dollar limit.[13] Most people have more carried-forward room than that, so the projection tends to under-use the RRSP rather than over-use it. The run reports when it has made this assumption.

What it deliberately does not

The engine can charge the excess-contribution tax and can attribute a spousal RRSP withdrawal back to the contributor within three years,[14] but All the Numbers never asks for either, so a plan contains neither. Each person's RRSP is their own; see taxes are per person.

A pension adjustment left blank is taken as none, so a pension plan member's room is too high. Past-service pension adjustments and pension adjustment reversals are not modelled. The Home Buyers' Plan and Lifelong Learning Plan borrow from an RRSP; see the Home Buyers' Plan and the Lifelong Learning Plan.

See also

  • Auto-allocation · When switched on, money left after spending and your own contributions is placed for you down a priority list — FHSA, then RRSP, then TFSA, then non-registered by default — each account taking what its room allows. Every dollar it moves is shown, by account, on each month and year.
  • Capital losses and the superficial-loss rule · A loss on a non-registered investment first cancels capital gains in the same year; any excess carries back three years or forward without limit. A loss is denied if the same investment is bought back within 30 days.
  • Combined marginal tax rates · The marginal rate is the federal and Ontario tax on the next dollar of income. In 2026 it runs from 19.05% to 53.53% on ordinary income, and the top rate is lower on capital gains and dividends than on interest.
  • Contributions the plan could not fund in full · Each month's leftover joins cash, and each contribution takes what cash can give it, in the order the accounts are listed. A contribution that cash cannot cover is funded in part rather than by an overdraft that does not exist, and the plan says so.
  • Expected returns and fees · The default return is 6.35% a year, nominal and net of fees, for an 80/20 stock and bond portfolio. It is an expected long-run average, not a forecast, and an account's own rate replaces it.
  • Foreign withholding tax · A foreign country can withhold tax from dividends paid to Canadians; for US dividends the treaty rate is 15%. The foreign tax credit recovers it in a non-registered account, but a TFSA gets no recovery and an RRSP is exempt.
  • How dividends are taxed · Canadian dividends are grossed up by 38% (eligible) or 15% (other), taxed as income, then reduced by a federal and Ontario dividend tax credit. The credits make dividends tax less than interest at the same income.
  • Income tax brackets and your marginal rate · Federal and Ontario tax are each charged in slices of income at rising rates, then reduced by credits, with an Ontario surtax and health premium on top. The marginal rate is what the next dollar costs; the average rate is total tax over income.
  • Net worth, as the plan counts it · Net worth is everything the plan holds (cash, investment and registered accounts, homes at market value) minus mortgages, credit lines, debts and tax owing. It is not reduced for selling costs or for tax on money still in an RRSP.
  • Over-contributions to a TFSA or RRSP · Putting more into a TFSA or RRSP than your room allows is taxed at 1% a month on the excess. An RRSP has a $2,000 cushion that is not taxed. All the Numbers never lets a contribution exceed room, so a plan does not include this tax.
  • Renting versus buying · All the Numbers compares a plan that buys a home with the same plan that never buys, and the money the home would have taken stays in your accounts and is saved like any other leftover cash. It shows when owning pulls ahead on net worth, if it does. It is a comparison under assumptions, not a verdict.
  • Retirement age · The age at which a person's pay stops in the plan, 65 unless you give another. Their monthly contributions stop then, and an RRSP becomes a RRIF at 71.
  • RRIFs and the wind-up at 71 · An RRSP must become a RRIF by the end of the year you turn 71, after which a prescribed minimum comes out and is taxed every year. Give a birth year and the plan models it; leave it blank and a plan running past 71 looks better than it is.
  • Self-employment income · A sole proprietor's net business income is taxed on the personal return, with nothing withheld during the year and both halves of CPP owed. The engine can model a simple sole proprietorship; All the Numbers does not ask for one, so plans treat everyone as an employee.
  • Spousal RRSPs · A spousal RRSP is held by one partner and funded by the other, who takes the deduction. Withdrawals within three years of a contribution are taxed to the contributor. All the Numbers does not offer one, so each person's RRSP is their own.
  • Taking money out of an RESP · Your own contributions come back tax-free. The grant and growth leave as education payments taxed to the student. If no one studies, growth is taxed to you with an extra 20%, and the grants are repaid. All the Numbers pays contributions first.
  • Tax withheld from pay, and the April refund · Employers withhold income tax, CPP and EI from each paycheque as an estimate. The real tax is worked out on the return, and the difference arrives or is owed the following April.
  • Taxes are per person · Canada has no joint return, so each of you is taxed on your own income with your own brackets and credits. The routes that do move income between partners — pension splitting, spousal RRSPs, prescribed-rate loans — are not modelled, so a couple's real bill may be lower than this.
  • TFSA contribution room · Room starts accruing the year you turn 18, not the year you open an account, and it never expires. Withdrawals come back the following January. Limits past 2026 have not been announced, so the plan projects them by the rule the Act sets and says so.
  • The First Home Savings Account · $8,000 a year with one year of carryforward and $40,000 for life, deducted from income and withdrawn tax-free for a first home. The refund is credited the following April, and the account winds up into an RRSP if it is never used.
  • The Guaranteed Income Supplement · A tax-free top-up to Old Age Security for pensioners with little other income. It falls by 50 cents for every dollar of other income (75 cents through part of the range); RRSP and RRIF withdrawals count against it, TFSA withdrawals do not. The projection estimates it on the previous year's income.
  • The Home Buyers' Plan · Up to $60,000 out of an RRSP, untaxed, for a first home — but it is a loan to yourself, repaid over fifteen years, and a missed repayment is taxed as income that year.
  • The Lifelong Learning Plan · Up to $10,000 a year and $20,000 in total can come out of an RRSP, untaxed, to pay for full-time study, and is repaid over ten years. A missed repayment is added to income. All the Numbers does not offer it.
  • Where the down payment comes from · The cash to close is assembled from the plan's projected balances in a fixed order — FHSA, TFSA, unregistered, HBP, then taxed RRSP — and each dollar is priced for what taking it costs.
  • Who the plan is about · A plan covers one person or two. Where a birth year is missing the plan assumes the person is 40 and born on 1 January, says so on the page, and uses that age for tax, pension and account rules until the real one is entered.
  • Workplace pensions · A defined-benefit pension from an employer pays a set amount each month for life, sometimes with a bridge benefit that stops at 65. Enter the yearly pension you expect when it starts, with the years you will still work, under each person's workplace pension; the plan does not add one you have not entered.

References

  1. ↑CRA MP/RRSP/DPSP/TFSA limits table; 2026 cap $33,810 · RRSP deduction limit formula: 18% of prior-year earned income minus pension adjustment, capped at the 2026 dollar maximum · See the source · effective 2026-01-01
  2. ↑CRA registered-program limits table · RRSP dollar cap on the earned-income formula · $33,810 · effective 2026-01-01
  3. ↑ITA 146(5)(a) ("on or before the day that is 60 days after the end of the year"), 146(5.1) · An RRSP contribution in January or February may carry; that year is reassessed from its stored December inputs and the difference refunded with the following April settlement. March 1–2 contributions are outside the monthly grain · See the source · effective 2026-09-18
  4. ↑ITA 146(5): premiums paid "in the year or within 60 days after the end of the year" and not deducted in a preceding year are deductible, up to the RRSP deduction limit; ITA 60(i) makes the deduction a choice ("may deduct") · Each December the RRSP deduction claimed is the least that gives the year's whole tax saving; premiums beyond it stay undeducted (still using room) and are offered again each later December, while they save tax. Income-tested benefits are not weighed in the choice · effective 2026-10-12
  5. ↑CRA — RRSP contribution limit formula (ITA s.1024(1)) · RRSP accrual rate on prior-year earned income · 18% · effective 1991-01-01
  6. ↑CRA — RRSP options when you turn 71 · An RRSP must mature (be withdrawn, annuitized or converted to a RRIF) by December 31 of the year the annuitant turns 71 · 71 years · effective 2007-01-01
  7. ↑ITA 204.2(1.1) C ("$2,000") · RRSP cumulative excess amount: undeducted premiums over (unused deduction room + current-year new room + this cushion where the individual attained 18 in a preceding year) · $2,000 · effective 1996-01-01
  8. ↑ITA 204.1(2.1) ("pay a tax under this Part equal to 1% of that cumulative excess amount") · Part X.1 tax a month on the cumulative excess amount at the end of each month · 1% · effective 1991-01-01
  9. ↑ITA 146(1) "RRSP deduction limit" (B: the lesser of the RRSP dollar limit and 18% of earned income for the preceding taxation year, less "the taxpayer's pension adjustment for the preceding taxation year in respect of an employer") and "earned income"; CRA, Reporting a pension adjustment (employers report it in box 52 of the T4; it reduces the next year's RRSP room); CRA "How contributions affect your RRSP deduction limit"; our convention · When a year's registered limits omit the RRSP addition, the engine derives it from the prior year's earned income at the RRSP income rate — employment, net rental and self-employment income assessed in the plan, floored at nil — up to the RRSP dollar limit, less the prior year's pension adjustment (T4 box 52) when the plan gives it, floored at nil (the planner takes the figure entered to grow like the salary and scales the retirement year by the months worked); past-service adjustments (PSPA) and reversals (PAR) are not modelled; the dollar limit is verified for the current year and the next (published a year ahead) and projected after with average wages, as the statute indexes it: the plan's inflation plus the Chief Actuary's real wage growth for the CPP ceiling · effective 2026-09-19
  10. ↑CRA "MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and the YAMPE" (2027 RRSP dollar limit $35,390 = 2026 MP limit); ITA 146(1) "RRSP dollar limit" and 147.1(1) "money purchase limit" · RRSP dollar limit for the next year, published a year ahead (it is the preceding year's money purchase limit) · $35,390 · effective 2027-01-01
  11. ↑Office of the Chief Actuary, Actuarial Report (32nd) on the Canada Pension Plan, revised version (valuation date 31 December 2024, published 28 May 2026), s.4.3.3: "Real AAE and real AWE are projected to increase by 0.8% in 2025 and for every year thereafter"; "The assumed increase in AWE is used to project the increase in the YMPE from one year to the next" (read 2026-11-02) · In projected years the earnings ceilings that the law grows with average wages grow at the plan's inflation rate plus the real wage growth given here, the Chief Actuary's best estimate: the CPP and QPP ceilings (YMPE and YAMPE; CPP Act s.18), EI and QPIP maximum insurable earnings (EI Act s.4) and, through the money purchase limit, the RRSP dollar limit (ITA 147.1(1) "money purchase limit" (o) and "average wage"). The CPP basic exemption stays at $3,500 as the law has it · 0.8% · effective 2026-11-02
  12. ↑CRA — TFSA/RRSP/FHSA over-contributions are taxed 1% a month (ITA 207.02, 204.1, 207.021); our convention · A contribution event flagged contributes no more than the TFSA/RRSP/FHSA room left that month (deducting no more than it contributed); what the room refuses stays in cash, never posted as an excess · effective 2026-09-20
  13. ↑ITA 146(1) "RRSP deduction limit"; our convention · An RRSP deduction limit not given is taken as one year's addition — 18% of the current salary as last year's earned income, up to the dollar limit — until the notice-of-assessment figure is entered; reported on the run · See the source · effective 2026-09-20
  14. ↑ITA 146(8.3) ("in the year or in one of the two immediately preceding taxation years"), 146(8.5), 146(8.6) · Spousal RRSP withdrawal before maturity: the contributor includes the lesser of the withdrawal and premiums paid to spousal plans in the year and the two preceding years (earliest premiums first); the annuitant's inclusion is reduced by the same amount; not while living apart on breakdown · 3 years · effective 1991-01-01