Canadians have just a few days left to make Registered Retirement Savings Plan (RRSP) contributions that will count toward their 2024 tax return. The deadline to contribute is Monday, March 3. After this date, any contributions made will only impact your 2025 tax filing.
An RRSP is an excellent way to reduce your taxable income, as the money you contribute is exempt from taxation until you withdraw it. This system is designed to encourage Canadians to save for retirement, as it provides an immediate tax break on contributions, explained Gerry Vittoratos, national tax specialist at UFile Canada.
“The immediate reward for contributing to an RRSP is the tax deduction it offers, lowering your overall tax bill,” said Vittoratos.
Investment income earned inside an RRSP grows tax-deferred, meaning it isn’t taxed annually, which allows your savings to compound over time, explained Vittoratos. As long as the money remains in the account, it continues to grow without being taxed year after year.
How Much Can You Contribute?
For the 2025 tax year, the maximum RRSP contribution limit is set at 18% of the income you earned in 2024, or $32,490—whichever is lower. It’s important to note that any unused contribution room from previous years can carry over, giving you additional room to contribute.
To determine your exact RRSP deduction limit, check your latest notice of assessment from the Canada Revenue Agency (CRA) or log into your CRA account.
Is an RRSP Right for You?
While an RRSP is an excellent tool for many, it’s not the best choice for everyone. If you’re in a lower tax bracket, earning under $57,000 per year, your immediate tax savings from contributing to an RRSP may be less significant. On the other hand, individuals with higher incomes can see more substantial tax benefits from contributing.
An RRSP is ideal for those who plan to save for retirement and won’t need access to the funds in the short term. However, if your goal is to save for a major purchase like a car or vacation, you might be better off considering a Tax-Free Savings Account (TFSA), which offers more flexibility for short-term goals.
How Much Should You Contribute?
A good rule of thumb is to aim to contribute about 10% of your income to your RRSP, but this varies depending on your financial situation. If you carry high-interest credit card debt, prioritize paying that off first rather than contributing to your RRSP.
Vittoratos advises against waiting until the last minute to make your RRSP contributions. Many Canadians rush to contribute just before the deadline, but spreading out your contributions throughout the year is generally a better strategy.
What Happens If You Contribute Too Much?
If you exceed your RRSP contribution limit by more than $2,000, you’ll face a 1% penalty tax on the excess amount for each month it remains in your account, according to the CRA.
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RRSP vs TFSA: Which is Better for You?
For the 2025 tax year, the TFSA contribution limit has increased to $7,000 (up from $6,500 in 2024). While the RRSP offers immediate tax deductions, the TFSA has the advantage of tax-free withdrawals—ideal for those who want flexibility and may need to access their savings sooner.
“The TFSA is more beneficial for people in lower tax brackets and those saving for short-term goals,” said Vittoratos. “But if you’re saving for the long haul, an RRSP is often the better option.”
Final Thoughts
The RRSP deadline is approaching fast, but with a clear understanding of your financial situation and goals, you can make an informed decision about your contributions. Remember, whether you choose an RRSP or a TFSA depends on your income, savings goals, and time horizon.
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