If you've ever looked into saving for retirement in Canada, you've probably come across the terms RSP and RRSP. They sound nearly identical, and many financial institutions use them interchangeably. But they don't mean quite the same thing.
RSP stands for Retirement Savings Plan. It's a broad category that covers several types of accounts designed to help you save for retirement. An RRSP, or Registered Retirement Savings Plan, is one specific type of RSP, and the one most people think of first.
This article breaks down what each term means, how they differ, and which types of retirement savings plans might suit your goals.
What is an RSP?
A Retirement Savings Plan (RSP) is an umbrella term for any savings account or investment vehicle designed to help Canadians set aside money for retirement. The term does not refer to a single product but rather covers a range of plans, some registered with the government, some not.
Examples include RRSPs, Tax-Free Savings Accounts (TFSAs), Registered Pension Plans (RPPs), spousal RRSPs, and non-registered accounts.
Because RSP is such a general term, you'll often see it used as shorthand for RRSP. The two are related, but they're not interchangeable.
What is an RRSP?
An RRSP is a Registered Retirement Savings Plan, a specific type of RSP that is registered with the Canada Revenue Agency (CRA). The "registered" part is what sets it apart. It means your contributions are tax-deductible, and any investment growth inside the account is tax-sheltered until you withdraw the funds.
You can contribute up to 18% of your previous year's earned income, up to the annual maximum set by the CRA. Any unused contribution room carries forward, so if you don't max out one year, you can catch up later.
This setup lets you use the power of compounding to build your retirement savings over time. When you eventually withdraw from your RRSP, typically in retirement, the money is taxed as income. The idea is that you'll likely be in a lower tax bracket by then, meaning you could pay less tax overall.
Key differences between an RSP and RRSP
The main difference comes down to scope. An RSP is any retirement savings plan, while an RRSP is one specific type of RSP that's registered with the CRA and comes with particular tax benefits.
Feature | RSP | RRSP |
|---|---|---|
| Registration | May or may not be registered with the CRA | Registered with the CRA |
| Tax deduction | Depends on the specific plan type | Contributions are tax-deductible |
| Contribution limits | Varies by plan type | 18% of previous year's earned income, up to the CRA annual maximum |
| Withdrawal rules | Varies by plan type | Withdrawals are taxed as income; exceptions include the Home Buyers' Plan and Lifelong Learning Plan |
| Tax-sheltered growth | Only for registered plan types | Yes, investment growth is tax-sheltered until withdrawal |
In everyday conversation, RSP and RRSP are often used interchangeably. But technically, an RRSP is one type of RSP among several.
Types of retirement savings plans
There are several types of retirement savings plans available to Canadians, each with its own tax advantages. Here's a look at the main options.
Tax-Free Savings Account (TFSA)
TFSAs have been available since 2009. You're not limited to saving for retirement with this account, although it can be used for that purpose.
The CRA sets a contribution limit for TFSAs every year, and as with an RRSP, unused contribution room carries forward. You can check this year's limit here.
If you don't already have a TFSA, you may have a sizeable amount of contribution room when you decide to open one. A word of caution: do not over-contribute. You'll be taxed on the excess until the moment you take it out of your account.
Contributions to TFSAs are not tax-deductible, so they don't reduce the amount of taxes you pay right now. But any money you earn within your TFSA is not taxed, which is where the "tax-free" part comes in.
The earnings on investments held in a TFSA are tax-sheltered and do not have to be declared on your income tax. If you have losses on investments held in a TFSA, you cannot use them to offset investment gains.
Withdrawals are non-taxable. They do not need to be included in your income and declared on your T1 General Income Tax Return (the form you complete to file your taxes every year).
Registered Pension Plan (RPP)
Many employers set up pension plans for their employees. There are two types.
Defined Benefit (DB) plans promise to pay a set pension amount based on a formula that includes age, years of service, and earnings history. Defined Contribution (DC) plans provide pension benefits based on the contributions and investment earnings, and many DC plans allow employee contributions.
It's important to note that contributions to an RPP have an impact on RRSP contribution limits. If you have questions about your employer pension plan, ask your human resources department or talk to your plan administrator.
Spousal RRSP
A spousal RRSP lets a higher-earning spouse contribute to an RRSP in their partner's name. The contributor gets the tax deduction, while the funds belong to the receiving spouse. This can help balance retirement income between partners and potentially lower a household's overall tax burden.
The same contribution limits apply, contributions to a spousal RRSP come out of the contributing spouse's available room. If the receiving spouse withdraws funds within 3 years of a contribution, the amount is attributed back to the contributor for tax purposes.
Non-registered accounts
Non-registered accounts don't come with the same tax advantages as RRSPs or TFSAs, but they offer something else: flexibility. There are no contribution limits, no restrictions on when you can withdraw, and no government registration requirements.
Investment income earned in a non-registered account, including interest, dividends, and capital gains, is taxable in the year it's earned. These accounts can be a useful option for those who have already maxed out their registered account contribution room.
How to choose the right retirement savings plan
The right plan depends on your financial situation, goals, and tax bracket. Here are a few things to consider:
If you want an immediate tax break, an RRSP lets you deduct contributions from your taxable income, which can lower your tax bill now
If you want tax-free withdrawals, a TFSA doesn't offer a tax deduction on contributions, but your withdrawals (including any growth) are completely tax-free
If your employer offers a pension, an RPP is a valuable part of your retirement income, though it may reduce your RRSP contribution room
If you've maxed out registered accounts, a non-registered account has no contribution limits, though investment income is taxable
Many Canadians use a combination of these accounts to balance immediate tax savings with long-term flexibility.
