As the March 3rd deadline approaches, it’s a timely opportunity to revisit your financial strategy and determine whether making a Registered Retirement Savings Plan (RRSP) contribution is the right move for the 2024 tax year.

Understanding the RRSP Advantage

An RRSP is a versatile investment account that can hold mutual funds, ETFs, GICs, bonds, and stocks. By contributing to an RRSP, you enter into an agreement with the government to save for retirement and enjoy these key benefits:

• Tax Deduction: Contributions reduce your taxable income for the year.
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• Tax-Deferred Growth: Any investment gains within the RRSP grow tax-free until withdrawal.
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• Tax-Efficient Withdrawals: Withdrawals are taxed at your marginal rate, often lower in retirement.

You can contribute to your RRSP until December 31 of the year you turn 71, at which point you’ll need to convert it to another account, typically a Registered Retirement Income Fund (RRIF), and begin withdrawals.

In 2025, the maximum contribution limit is $32,490 or 18% of your 2024 earned income, whichever is lower. For 2024, the limit was $31,560. Any unused contribution room from previous years carries forward, so it’s never too late to start contributing.

Strategic Tax Planning with RRSPs

One overlooked benefit of the RRSP is the ability to defer the use of your tax deduction. This means you can contribute now and claim the deduction in a future year when you’re in a higher tax bracket, maximizing the value of your savings.

RRSP vs. TFSA: Which is Right for You?

While RRSPs are a cornerstone of retirement planning, the Tax-Free Savings Account (TFSA) is another excellent option. Understanding the differences can help you decide which is better suited to your goals:

1. Tax Benefits:

• RRSPs offer an upfront tax deduction but tax withdrawals later.
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• TFSAs provide no initial tax deduction, but withdrawals are tax-free.

2. Withdrawal Rules:

• RRSPs must be converted to a RRIF by the end of the year you turn 71, with mandatory withdrawals starting the following year.
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• TFSAs have no age limit or mandatory withdrawal requirements, offering greater flexibility.

3. Investment Options: Both accounts can hold similar investment types, such as mutual funds, ETFs, bonds, and stocks.

4. Contribution Limits:

• ‍‍The 2025 RRSP limit is $32,490 or 18% of your earned income.
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• The TFSA contribution limit for 2025 is $7,000. If you have never contributed to a TFSA, were 18 years or older as of 2009 and a resident of Canada, you could deposit up to a maximum of $102,000. Unused TFSA contribution room rolls over from one year into the following year.

What’s Best for You?

Choosing between an RRSP and TFSA depends on factors like your income, current tax bracket, retirement goals, and need for flexibility. High earners may prioritize RRSPs for the immediate tax deduction, while those seeking tax-free withdrawals or flexible access to funds might favor TFSAs.

Conclusion

RRSPs remain a powerful tool for Canadians to build a secure financial future. Whether to prioritize RRSP contributions, TFSAs, or a combination of both depends on your unique financial situation and retirement goals. If you’re unsure about your next steps, we’re here to help.

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