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Contribution limits and types of RRSP investments

Many people in Canada choose to have an RRSP. However, did you know that there are different kinds of RRSP investments?

There are three types of RRSP’s: Individual RRSP, Spousal RRSP’s and Group RRSP’s.

What is an RRSP?

RRSP’s are Registered Retirement Savings Plans. They are retirement plans that are registered with the federal government which allows a person to save for retirement while that investment is sheltered from taxes.

Individual RRSP

An individual RRSP is an account that is in your name only and only you are entitled to the benefits. Any income earned in the RRSP is exempt from taxes but in order to stay exempt it must stay in the plan. If a person receives payments from the RRSP she or he will have to pay takes on those payments.

Spousal RRSP

A spousal RRSP plan is registered in the name of your husband or wife or common law partner. However, you are still able to contribute to it but they are the ones who own the RRSP.

To qualify for a spousal RRSP, you must:

  • Have lived together as a couple for at least 12 months;
  • Have a child together by birth or adoption; or
  • Share custody and support of your partner’s children from a previous relationship.

Group RRSP

Certain companies with whom people are employed offer a group RRSP, which is the employer’s way of helping the employees save for their retirement but the employer also often contributes to what the employee is setting aside.

How do does a group RRSP work?

Often the employee opens his or her own RRSP but contributions occur through the employer with the investments held at the same bank or financial institution. It’s the employer who often pays the cost of opening as well as managing the plan, though the employee usually pays an investment cost.

The amount you contribute to the group RRSP is usually deducted from your pay and the employer either matches or adds to your contribution. If you want to invest then you should be aware that with a group RRSP investment options are often limited and they also depend on where the group RRSP is housed.

Contribution limits

There are maximum annual contribution limits for an RRSP. For the year 2018, the maximum annual limit set by Revenue Canada is $26,500.00

However, your allowable RRSP contribution for the current year is the lower of:

  • 18% of your earned income from the previous year; or
  • The maximum annual contribution limit for the taxation year; or
  • The remaining limit after any company sponsored pension plan contributions.

Income earned income that doesn’t only include salary but also business income, disability pensions, employee profit sharing income, alimony or maintenance and rental income.

Read more:

What is an RRSP?

RRSPs and Other Registered Plans for Retirement