When should you start contributing to an RRSP?
Date: January 3, 2025
Contributing to a Registered Retirement Savings Plan (RRSP) remains a cornerstone of retirement planning in Canada. Understanding the optimal timing and strategies for RRSP contributions is crucial for maximizing benefits.
Understanding RRSP Contribution Limits
For 2025, the RRSP contribution limit is set at 18% of your earned income from the previous year, up to a maximum of $32,490, up from $31,560 in 2024. This limit is indexed annually to reflect increases in the average wage. It’s essential to note that unused contribution room from previous years can be carried forward, allowing flexibility in your retirement planning.
Strategic Timing for Contributions
Contributing to your RRSP during your higher-earning years can be particularly advantageous. Since contributions are tax-deductible, they can reduce your taxable income, potentially placing you in a lower tax bracket. Withdrawals made during retirement are then taxed at your presumable lower retirement income tax rate, optimizing your lifetime tax efficiency.
Early Contributions and Compound Growth
Starting your RRSP contributions early, even with modest amounts, can significantly enhance your retirement savings due to the power of compound interest. Regular contributions, whether bi-weekly or monthly, allow your investments to grow over time, maximizing the benefits of the RRSP. The graphs below show how your contribution starting age, amount of your contribution and frequency of payment can compound over time.
Consulting with a Financial Planner
Given the complexities of retirement planning, members can benefit from consulting with a financial planner. Our experts can provide personalized advice tailored to your specific financial situation, ensure that your RRSP contributions align with your long-term goals.
