RRSP Basics for Newcomers to Canada

What Is an RRSP?

An RRSP is a government-registered savings account designed for retirement. It has two main tax advantages:

1. Contributions are tax-deductible — If you earn $70,000 and contribute $5,000 to an RRSP, you are only taxed on $65,000 of income that year.
2. Growth is tax-deferred — Any investments inside the RRSP grow without being taxed year by year. You only pay tax when you withdraw the money.

The trade-off: when you withdraw in retirement, you pay income tax at your marginal rate at that time. The assumption is that your income (and therefore tax rate) will be lower in retirement than during your working years.

How Much Can You Contribute?

Your RRSP contribution room for a given year is 18% of your earned income from the previous year, up to an annual maximum (the 2025 limit is $31,560).

As a newcomer, your contribution room only starts accumulating after you file your first Canadian tax return. In your first year, you may have limited or no RRSP room.

Example: If you earned $60,000 in 2025, your RRSP contribution room for 2026 would be $60,000 × 18% = $10,800.

You can find your exact available contribution room on your Notice of Assessment (NOA) or in your CRA My Account.

Carry-Forward Room

If you do not use all your contribution room in a year, it carries forward indefinitely. This means if you could not contribute for a few years after arriving in Canada, you can catch up later.

When Should a Newcomer Use an RRSP?

The RRSP makes the most sense when:

• Your marginal tax rate is high — The higher your income bracket, the more valuable the tax deduction. If you earn under $50,000, the TFSA is often a better starting point.
• You expect a lower income in retirement — The RRSP benefit comes from withdrawing at a lower tax rate than when you contributed.
• You are buying your first home — The Home Buyers' Plan (HBP) lets you withdraw up to $60,000 tax-free from your RRSP for a first home purchase (to be repaid over 15 years).
• You are going back to school — The Lifelong Learning Plan (LLP) lets you withdraw up to $20,000 tax-free for full-time education.

RRSP vs TFSA: Which Should Newcomers Prioritize?

For most newcomers in their first few years in Canada, the TFSA is often the better starting point because:

• You do not need prior earned income to accumulate TFSA contribution room
• TFSA withdrawals are completely tax-free and do not affect income-tested benefits
• If your income is still relatively low as you establish your career, the RRSP tax deduction is worth less

Once your income is in the $60,000+ range, the RRSP becomes increasingly attractive. Many Canadians eventually use both.

Use our [TFSA vs RRSP Calculator](/calculators/tfsa-vs-rrsp) to see which is better for your specific numbers.

How to Open an RRSP

1. Go to your bank or investment platform
2. Open an RRSP account (it is a wrapper — you then choose what investments to hold inside it)
3. Contribute before the March 1 deadline to apply the deduction to last year's taxes
4. Choose investments: GICs, mutual funds, ETFs, or stocks

For simple, low-cost investing, a single "all-in-one" ETF (like XBAL or VBAL at Questrade or Wealthsimple) inside an RRSP is a popular approach for newcomers.