Things to Consider Before Making an RSP Contribution this Year

The RSP contribution deadline for the 2025 tax year is Monday, March 2, 2026. Contributions made by this date can be deducted from your 2025 taxable income. The maximum contribution limit is 18% of earned income, up to $32,490.

Depending on your personal situation, it doesn’t always make sense to contribute.

Contributing to an RSP is best for high-income earners in their peak working years. When you put money in, you get an immediate tax deduction, which usually leads to a nice refund. Your money grows tax-free, but when the time comes to withdraw your savings, the government treats every dollar you take out as taxable income.

If you’re anticipating a significant salary bump down the road, it’s often smarter to bank your contribution room now and deploy it later when you’re in a higher tax bracket to maximize your refund.

Don’t get me wrong, there’s lots of benefits to an RSP to consider. First, everyone wants a refund. If you’re in a 40% tax bracket, a $10,000 contribution will save you $4,000 in taxes. Second, contributions serve as “forced savings”. Because withdrawals are taxed (and contribution room is lost forever once used), you’re less likely to dip into it for a spontaneous vacation. Third, you receive tax-sheltered growth on the investments. Last, you can borrow from yourself for a down payment (Home Buyers’ Plan) or for school (Lifelong Learning Plan) without immediate tax penalties.

If now isn’t the right time to make an RSP contribution, be sure to take advantage of your Tax Free Savings Account (“TFSA”).

With a TFSA, you contribute “after-tax” dollars (so no refund, unlike the RSP), but everything the account earns (capital gains, dividends, interest income) is yours to keep, tax-free, forever. The TFSA was first introduced in 2009; if you’ve never made use of it, and were an age of majority in 2009, your cumulative contribution room is $109,000 today.

Unlike an RSP, the TFSA allows you to withdraw money at any time for any reason (buying a car, emergency fund, or to take a vacation) with zero tax consequences. If you withdraw $5,000 this year, you get that $5,000 of contribution room back on January 1st of the next year.

Some people also contribute to their RSP to get the tax refund, then immediately deposit that refund into your TFSA.

If you’re early in your career, earn a modest salary, or if you simply value the ability to access your cash without the government taking a cut, the TFSA is probably more ideal at this stage in your life. If you’re at peak earnings, the RSP is likely more appropriate for you.

Everyone is different. Please feel free to contact us to receive a personalized opinion based on your circumstances.

(Note: If you’re saving for a home, the First Home Savings Account [FHSA] might actually beat both the RRSP and TFSA. Read a previous blog here about that topic.)

-written by Jeff Pollock