Everything You Need to Know About RRSP Contribution Limits
In 2023, 11.3 million Canadians contributed to either a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA), according to Statistics Canada. Of these, 3.8 million invested solely in RRSPs—highlighting how vital retirement planning remains for employees across the country.
But what does that mean for HR professionals and business leaders, exactly? Financial wellness has a direct impact on employee wellbeing, productivity, and morale. In fact, financial stress and disengagement can cost a 200-employee business up to $200,000 per year. Investing in your employees’ financial wellness is good for employees and the business.
One way to help ease employees’ financial stressors is to help them plan for retirement. An RRSP is a great way to do so.
Keep reading to learn about essential features of RRSP contribution limits for employers and employees—starting from how they’re calculated to the tax benefits they provide—so you can help your employees make the most of their RRSP savings while keeping payroll and compliance processes on track.
What is an RRSP?
An RRSP, or Registered Retirement Savings Plan, is a personal savings plan registered with the Canada Revenue Agency (CRA) to help you save for retirement. You can contribute to your own RRSP or to one for your spouse or common-law partner. Contributions to an RRSP are tax-deductible, helping reduce your taxable income.
This means that any money you earn inside your RRSP, such as interest or investment growth, isn’t taxed as long as it stays in the plan. You’ll only pay tax when you take the money out.
What do employers need to know about RRSP contribution limits?
For employers and HR professionals, understanding RRSP contribution limits is key to supporting staff in making informed financial decisions for their future. Educating employees about eligibility and RRSP contribution limits can also enhance engagement with workplace savings programs and overall financial wellbeing.
- Eligibility: Employees can contribute to an RRSP if they have earned income from employment or business, or unused contribution room from previous years.
- Ineligible income: RRSP contributions cannot be made from property income such as investments, royalties, or capital gains.
- No minimum age: There is no age limit to contribute, as long as the individual has qualifying income.
- First-time contributors: Employees must have filed an income tax return for the previous year showing employment or business income.
- Checking limits: The Canada Revenue Agency (CRA) sends a yearly Notice of Assessment detailing how much an individual can contribute and deduct.
Do you have a sponsored pension plan for your employees?
If you’re part of a pension plan or a Deferred Profit Sharing Plan (DPSP) by your employer, your RRSP contribution limit is equal to 18% of your eligible income from the previous year, minus the pension adjustment calculated by your employer. Refer to the CRA’s Notice of Assessment to confirm before contributing.
Taxes on RRSP withdrawals
All RRSPs must be officially registered with the Canada Revenue Agency (CRA). They operate as a tax-deferred savings mechanism, allowing individuals to postpone taxation until funds are withdrawn. For HR departments, understanding RRSP tax withdrawals ensures accurate financial communication when assisting employees with retirement planning.
How are RRSP withdrawals taxed and how much tax do you pay on them?
- Tax-deferred, not tax-free: RRSPs postpone taxes until withdrawal
- Tax reduction on contribution: Contributions lower taxable income at both federal and provincial levels within allowed limits
- Tax-free accumulation: Investment income within the RRSP remains untaxed until withdrawal
- Taxable withdrawals: Money withdrawn from an RRSP is taxable income, except when taken out under the Home Buyer’s Plan (HBP) or Lifelong Learning Plan (LLP)
- Repayments: Withdrawals under the HBP or LLP must be repaid to your RRSP through annual payments over a fixed period
- Unpaid balances: Any unpaid or partially repaid amount is added to your taxable income for that year
- Contribution deadlines: To claim a deduction for a given year, contributions must be made within the first 60 days of the following year
RRSP contribution limits FAQs
Find the answers to your most commonly asked questions about RRSP contribution limits.
How are RRSP contribution limits calculated?
RRSP contribution limits are set by the Canada Revenue Agency (CRA). It’s based on an individual’s unused deduction room from the previous year, plus the lesser of 18% of your earned income or the annual limit ($32,490 for 2025). Adjustments include:
- Pension adjustment (PA). Represents the total value of an individual’s pension credits for the year with a specific employer
- Pension adjustment reversal (PAR). Restores an individual’s RRSP contribution room when they leave a Defined Benefit (DB) Pension Plan or a Deferred Profit Sharing Plan (DPSP)
- Net past service pension adjustment (PSPA). Reflects the additional pension credits granted for previous years if an employer upgrades benefits or adds extra pensionable service that wasn’t included in the original calculation.
What are the RRSP contribution limits in Canada in 2025?
For 2025, the RRSP contribution limit was $32,490, and for 2026, it rises to $33,810. These limits are set by the CRA each year. You can contribute up to 18% of your income from the previous year, up to the annual maximum, plus any unused room from past years.