Quick take-aways

There are many ways to save for retirement. Some Canadians have access to a retirement savings or pension plan through their workplace. This type of plan may allow you to make contributions, often with the benefit of matching contributions from your employer.

For saving on your own, you basically have two options: registered and non-registered savings.

Registered savings plans

These plans are “registered” with the Canada Revenue Agency (CRA). That means that they receive certain tax advantages. But they may be subject to CRA rules around how much you can contribute each year, what you can invest in (mutual funds, ETFs, GICs, individual stocks and bonds) and how withdrawals will be taxed.

In Canada, the most common examples are Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). An employer pension plan is also a registered plan that can provide you with a source of income during your retirement.

Non-registered investment accounts

These accounts do not offer the same tax savings and deferral benefits as registered options. But you can more easily access your money and control how much you contribute or withdraw. All investment income you earn in a non-registered account is taxable. The amount of tax you owe will depend on whether the investment income is from interest, dividends or capital gains.

What type of registered savings plan is right for me?

How can a Registered Retirement Savings Plan (RRSP) help me save?

Many Canadians choose RRSPs to save for their retirement. You can hold a variety of investment products in your plan – GICs, mutual funds, ETFs, stocks, bonds, etc.

Essentially, when you “register” your retirement savings plan you’re entering into an agreement with the government: you put money away for retirement and they provide some perks. And those perks are what make RRSPs special.

1. You can lower your income taxes.

First, there’s the immediate tax benefit of being able to deduct your RRSP contributions on your income tax return. The higher your marginal tax rate, and the more you contribute to your RRSP (up to an established maximum), the greater the tax benefit.

Say you’re working and you make $50,000 this year. You put $5,000 of that in your RRSP account. You can deduct your contribution directly from your income on your tax return. So you would pay tax on only $45,000 of earned income.

2. You can defer tax on any investment gains you make within the RRSP. 

When interest and earnings on investments are not taxed, you have more money to reinvest and grow, leading to more money for you to spend in retirement. Any income and gains you earn on investments within your RRSP will grow tax-deferred until you withdraw from your RRSP or Registered Retirement Income Fund (RRIF) in retirement. At that point, all withdrawals are taxed as regular income at your marginal tax rate.There are still a few benefits even when you start withdrawing money from your RRSP:

• You may be in a lower tax bracket by the time you make those withdrawals than when you were working.

• If you have a spouse or common-law partner, you may also be able to use income-splitting strategies to redistribute the taxes due.

3. You are less likely to withdraw money early because of taxes. So your money stays invested and can grow over the long term.

With a TFSA or non-registered investments, you may be tempted to dip into your retirement savings if a major expense comes up. Try that with your RRSP and it will cost you in a couple of ways.

• You may have to pay withholding tax of up to 30%.

• You lose the contribution room associated with those funds permanently.

There are other ways to use your RRSP, which may provide additional benefits.

• With the Home Buyers’ Plan, you can withdraw up to $60,000 from your RRSP to buy or build your first home. You have 15 years to pay back the amount you withdrew. For withdrawals before January 1, 2022, you must start repayments the second year after you buy (or build) your home. For withdrawals between January 1, 2022 or after December 31, 2025, you can start repayments up to five years after you buy.

• With the Lifelong Learning Plan, you can borrow up to $10,000 a year from your RRSP ($20,000 maximum for each program of study) to go back to school full-time. Again, there are rules about eligibility, and how and when you’ll need to pay back this money.

How much can I contribute to my RRSP?

Rules apply to how much you can contribute each year and what happens when you don’t contribute the maximum amounts allowed. You can contribute to your RRSP until December 31 of the year you turn 71. Then you have to convert it to another vehicle, such as a Registered Retirement Income Fund (RRIF).

• Yearly amount you can contribute: This amount changes from year to year. For 2025, the total amount that can be contributed is the lesser of $32,490 or 18% of your earned income in the previous tax year (plus any unused RRSP deductions from previous years). In 2026, the limit will be bumped to $33,810.

• Carry forward: You can carry forward any unused contribution room from previous years to top up the yearly amount allowed.

How can a Tax-Free Savings Account (TFSA) help me save?

A TFSA is another registered account designed to encourage people to save for retirement and other goals. You’re eligible to start contributing as soon as you turn 18. There is no limit on how long you keep your account open. You don’t have to close it once you reach a certain age and move your money into a different plan like you do with RRSPs.

Like an RRSP, you can hold many different kinds of investment products in this account – GICs, mutual funds, ETFs, stocks, bonds, etc. The big difference is that the money you put into your TFSA is ‘after-tax income.’ In other words, you will pay income tax on those dollars before you deposit them into your account.

On the plus side, your withdrawals are not taxed as income. That includes withdrawals of any investment gains you make within the TFSA. In most cases, you can take money out at any time and it won’t change your taxable income.

If you have questions about TFSA withdrawals, talk to a financial advisor.

How much can I contribute to my TFSA?

Rules apply to how much you can contribute each year and what happens when you don’t contribute the maximum amount you are allowed.

• Yearly amount: This amount changes from year-to-year. For 2025 you can put in up to $7,000 but check back next year to keep on top of the limits.

• Carry forward: You can carry forward any unused contribution room to future years to top up the yearly amount. If you withdraw money at any time, the withdrawal amount is added back to how much you can contribute the next year.

This makes the TFSA an excellent vehicle to fund larger purchases, like a car or house, or to serve as an emergency fund. It’s also a good vehicle for retirement savings, particularly if you have used up your RRSP contribution room.

Tips for retirees

• You must close your RRSP and put any remaining funds into your Registered Retirement Income Fund (RRIF) at the end of the year you turn 71. You will then have to make minimum withdrawals each year from your RRIF.

• If you do not need all or part of your RRIF withdrawals for living expenses and you have unused contribution room in your TFSA, consider reinvesting the excess funds from your RRIF withdrawals in your TFSA. Your money can continue to enjoy tax-sheltered growth in your TFSA and there are no minimum withdrawals.

• The fact that the money you take out of your TFSA isn’t considered taxable income can be key for retirees. It means you can take money out without it affecting other benefits (like Old Age Security) that are based on income.

What’s the difference between a TFSA and RRSP?

How can a company pension plan help me save?

If your company offers a pension plan, it’s worth getting to know the ins and outs so you can take advantage of this worthwhile savings strategy. There are two main types of plans: a defined benefit (DB) plan and a defined contribution (DC) plan.

Understanding defined benefit (DB) plans

DB pension plans provide retired employees with consistent income for life. The amount you receive is usually based on a formula that factors in your years of service with the company and your earnings.

Unless you are employed in the Canadian public sector (think government employees, health care workers or teachers), you more than likely don’t have access to a DB plan. Although a fairly large number of Canadians still have them, the number of workers covered by this plan type has been steadily declining for years.

Understanding DC plans

DC plan membership has been consistently rising over the last decade. These plans can offer employees more control over their participation and investment strategy.

A DC plan is like a personal account for retirement savings offered through your workplace. In general, you decide how much you want to contribute monthly, up to a maximum.  Your contribution will be automatically deducted from your pay before you receive it. This provides an immediate tax advantage and makes it easier to save.

Some companies will match part of your contribution. Sometimes they may even make additional contributions on your behalf, whether you participate in the plan yourself or not.

As your income grows, so does your contribution – even if you don’t change your contribution rate at all.

How to make the most of your DC plan

Taking advantage of additional contributions from your employer can help you grow your savings with much less effort. Binah has been working at Company A for two years. Her base salary is $48,000 and her company will match 100% of her contributions.

More benefits

• When you deduct your contribution directly from your pay, you put your money to work immediately, instead of waiting and contributing a lump sum near RRSP deadline time.

• There’s no need to rush in. You can start with a relatively low contribution rate, say 2%, and slowly increase your level over time.

• With some plans you can increase your savings level automatically so you don’t even have to think about it.

Investing options in your DC plan

Your retirement income from a DC plan is determined by how much you save and how your investments grow over time. That’s why it’s particularly important to take an active role in determining how your contributions are invested.

DC pension plans can offer many investing options, including mutual funds and shares in the company you work for. Investment choices will vary from plan to plan. Examples include:

1. Building your own portfolio

This means it’s your responsibility to monitor your investments and potentially make changes as you move closer to retirement or as your risk tolerance shifts. However, employers may help you make informed decisions by providing tools and investment information.

1. Choosing a pre-built target date fund

These funds are designed for those who want simplicity and a more hands-off approach. All you need to do is select the year you’re expecting to retire, and the fund manages your investments and asset mix for you.

Keep the big picture in mind

Think of your long-term financial plan as a puzzle, and your pension plan, RRSP, TFSA or other accounts as pieces of it. A financial advisor can help you put that puzzle together and ensure everything fits. Seeking guidance on the best way to take full advantage of the options available to you can help you reach your retirement savings goals.

Additional Resources