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RSP Vs. RRSP 2024: Are They The Same Or Different?

Financial JournalistChristopher Liew, CFA
Christopher Liew is a CFA Charterholder and has held several roles in the finance industry.He’s worked as an investment wholesaler at Sentry and CI Financial, a financial advisor at RBC, and an energy trader at Enmax.He is Alberta-based while he’s in Canada, but spends much of his time working and living in other countries.Christopher speaks English and studied accounting and finance at the University of Alberta.He is one of the founders of Wealth Awesome where he has written articles and created videos for our subscriber base of over 20,000 Canadian investors.

Expertises: finance, investment, stocks, retirement, canada
RSP Vs. RRSP
 

Confused about the difference between an RSP vs. an RRSP?

At first glance, RSP may just look like a misspelling of RRSP. However, there is a very distinct difference between the two.

Namely, an RRSP is a type of RSP.

A Registered Savings Plan (RSP) refers to one of several different plans that Canadians can use to save and prepare for their future. Below, I’ll outline the most common RSPs and their differences, so you can figure out which is best for you!

Are RSPs & RRSPs The Same?

Canadians are surprisingly good at saving money. One of the factors behind this is that the Canadian government incentivizes people to save by offering several Registered Savings Plans (RSPs).

RSPs offer tax-advantaged incentives to save money by allowing Canadians to pay fewer taxes as long as their money is saved in CRA-registered accounts.

To keep things fair, the CRA imposes annual contribution limits on RSP accounts. However, maximizing your allowed contributions to an RSP (or multiple RSPs) can be a great way to help you and your family prepare for an uncertain future.

Although the terms RSP and RRSP are often interchanged in daily conversation, it’s important to understand the distinction between the two.

Registered Retirement Savings Plans (RRSPs) are a type of RSP designed to help Canadians prepare for retirement. That being said, an RRSP is NOT the same as an RSP.

Types Of Registered Savings Plans (RSPs)

An RSP is a plan that has been registered with the CRA. Because these accounts have considerable tax advantages, the CRA closely monitors them to ensure people follow the rules and do not over-contribute or misuse them.

Since we’re on the topic, I figure that this is a good place to talk about all of the different types of RSPs that Canadians can invest and save with. The main types of RSPs you may choose to invest in include:

  • Registered Retirement Savings Plan (RRSP)
  • RPP (Registered Pension Plan)
  • Tax-Free Savings Account (TFSA)
  • Registered Education Savings Plan (RESP)
  • Registered Disability Savings Plan (RDSP)

RSPs can be used to hold several different investments, including:

  • Stocks
  • ETFs
  • Index funds
  • Mutual funds
  • GICs
  • Cash

These accounts can be managed actively (for example, many company pension plans require you to invest in mutual funds, which are actively managed) or in self-directed accounts (for example, if you open a DIY trading platform account and invest in a TFSA).

Below, I’ll go over each of these in further detail so you know which ones apply to your situation and goals.

RRSP: Registered Retirement Savings Plan

Registered Retirement Savings Plans (RRSPs) are designed to help individuals save for their retirement by allowing them to contribute a portion of their income each year (within limits) to a tax-deferred investment or savings account that’s registered with the CRA.

The funds in the account grow tax-free but are taxed as income only when withdrawn.

You can withdraw from your RRSP early (without withholding taxes required) for two reasons:

Any other early withdrawals can be heavily taxed depending on your income level, so you should try to avoid withdrawing money from the account before retirement.

One of the key benefits of an RRSP is that your contributions are tax-deductible. The money invested into an RRSP can come directly from your paycheque before income taxes are applied, which will reduce the amount of your income and tax liability.

You can also choose to contribute to an RRSP with after-tax dollars, and you’ll receive a tax refund at the end of the year instead. If given the option, I would choose to contribute directly from your paycheque though, as it’s a much simpler process.

There is a maximum contribution age of 71 for RRSPs. After this, the account must be converted to a Registered Retirement Income Fund (RRIF).

Contribution Limits:

The amount that can be contributed to an RRSP each year is based on a percentage of your earned income up to a certain annual limit. Any unused contribution room can be carried forward to future years.

The annual contribution limit for RRSP accounts in 2023 is $31,560. Each year, the contribution limit increases slightly to account for inflation and current economic conditions.

Who Can Contribute:

Anybody can contribute to an RRSP as long as they’re a legal resident of Canada. Most banks require the individual to be of majority age before opening up an account.

Key Benefits:

  • Your investment can grow tax-deferred
  • RRSP contributions are tax-deductible
  • Your RRSP can be used to purchase your first home
  • Your RRSP can be used to fund post-secondary education

RPP: Registered Pension Plan

RPP: Registered Pension Plan

Registered Pension Plans (RPPs) are very similar to RRSPs and are often called “group RRSPs.” These registered retirement savings plans differ from traditional RRSPs, which are individual plans.

By contrast, an RPP is a group pension plan managed by an employer. Any employee within the company may contribute to the RPP, and employers typically match a percentage of their employee’s contributions.

The main benefit of an employer-sponsored RPP compared to an individual RRSP is that the account management fees are lower. The fees for managing a single RPP compared to multiple individual RRSPs allow the company’s employees to save more over time.

If you ever quit the company or move on, you’re still entitled to the amount you contributed but forfeit future employer contributions. You can leave your money in the RPP and allow it to grow, transfer the funds to your new employer’s RPP, or transfer the money into a personal RRSP account.

Contribution Limits:

Contributions made to an RPP count towards your total allowed RRSP contribution room. That being said, the total contribution limit for RPP accounts in 2023 is $31,560.

You can contribute to a personal RRSP and an employer-sponsored RPP simultaneously, but your contribution limit remains the same and must be divided between the two accounts. Ultimately, the more money you have in a single account, the quicker your account will be able to grow.

Who Can Contribute:

RPPs are sponsored by employers. If the company you work with offers an RPP, you’ll be allowed to enroll once you’ve been hired.

Key Benefits:

  • Your funds grow tax-deferred
  • Your employer matches a percentage of your RPP contribution
  • RPP contributions are tax-deductible
  • RPPs have lower account management fees compared to individual RRSPs

TFSA: Tax-Free Savings Account

TFSA: Tax-Free Savings Account

The Canadian government launched the TFSA program in 2009 with the goal of incentivizing Canadians to save more money. Each year since the program began, the government has increased the annual contribution limit for TFSA accounts, allowing individuals to grow their savings slowly.

The major advantage of a TFSA account is that the money within the account can grow tax-free and be withdrawn without any tax consequences as well. You won’t be charged income tax or capital gains tax on any profits realized within the account, even if you choose to withdraw the amount.

However, unlike RRSPs and RPPs, TFSA contributions are not tax-deductible. Instead, your contributions are from your after-tax income. Many Canadians contribute their extra savings to a TFSA once they’ve maximized their annual RRSP contributions.

Related Reading: Be sure to check out my ultimate guide to TFSA accounts.

Contribution Limits:

If you were 18 years old in 2009 (when the program launched), then you’re entitled to the maximum TFSA contribution room of $88,000. Otherwise, your contribution limit is dictated by the year you first became eligible.

For example, the contribution limit for 2009 was $5,000, and the contribution room for 2010 was $10,000. If you weren’t eligible for the TFSA program until 2010, then your total contribution room would be $5,000 less than an individual who was eligible the prior year.

You can learn more about TFSA contribution limits here.

Who Can Contribute:

To contribute to a TFSA account, you must be 18 years old and a Canadian resident.

Key Benefits:

  • Your funds can grow tax-free
  • Realized profits can be withdrawn tax-free
  • TFSAs can be used as an investment vehicle
  • The TFSA contribution limit increases yearly

RESP: Registered Education Savings Plan

RESP: Registered Education Savings Plan

Registered Education Savings Plans (RESPs) are a type of registered savings plan that’s designed to help parents, guardians, and extended family members save for their child’s education.

The funds in an RESP grow tax-free and can be used to pay for post-secondary education expenses, such as tuition fees, textbooks, and room and board.

There are restrictions on when and how the funds in an RESP can be withdrawn, and there may be penalties and taxes associated with withdrawing funds for non-educational purposes. These would be similar to the taxes and penalties applied to an early RRSP withdrawal.

One of the key benefits of an RESP is the ability to receive government grants, such as the Canada Education Savings Grant (CESG), which provides up to $500 in grant money per year per child sponsored by the RESP account.

Families with lower incomes may also be eligible for additional grant money through the Canada Learning Bond (CLB).

Additionally, there are annual and lifetime contribution limits, and any unused contribution room cannot be carried forward to future years.

Contribution Limits:

There are no annual contribution limits for RESP accounts. However, the lifetime maximum contribution amount per sponsored child is $50,000.

Who Can Contribute:

Any parents can contribute to an RESP account for their child. Additionally, friends, family, and guardians can contribute to a child’s RESP as long as the lifetime amount per sponsored child doesn’t surpass $50,000.

Once the child is ready to attend post-secondary school, the funds can be withdrawn and applied to education expenses by the parents (or the child, with the RESP sponsor’s approval).

Note that the money will count as income towards the child when withdrawn, which is another tax benefit since they are usually in a lower income bracket.

Key Benefits:

  • RESP funds grow tax-free
  • RESP funds allow multiple family members to contribute to a child’s future education
  • RESP funds can be transferred to another child if one child chooses not to attend school

RDSP: Registered Disability Savings Plan

RDSP: Registered Disability Savings Plan

Registered Disability Savings Plans (RDSPs) were introduced in 2008 to help individuals with disabilities save for their long-term financial needs. The funds in an RDSP grow tax-free and can be used to pay for various disability-related expenses, such as medical care, housing, and education.

RDSP accounts are eligible to receive government grants and bonds, such as the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB), which can provide up to $3,500 and $1,000 per year, respectively.

Contribution Limits:

There are no annual contribution limits for an RDSP account. However, the maximum lifetime contribution to an RDSP account is $200,000. Individuals can contribute to an RDSP account until age 59.

Who Can Contribute:

Anybody with a disability can open an RDSP account or contribute to an existing RDSP account. Additionally, parents, guardians, and other entities authorized to act on the legal behalf of the disabled individual may open an RDSP account for them.

Key Benefits:

  • Funds grow tax-free (although they’re not tax-deductible)
  • The lifetime contribution amount of $200,000 is more than other RSPs
  • Provides financial support to pay for disability-related needs

Conclusion – An RRSP Is A Type Of RSP

An RRSP is just one of several different types of RSPs. RSPs are special savings accounts registered with the CRA that allow Canadians to save and plan for their future.

The one thing that all RSPs have in common is that they each offer their own perspective tax benefits. Some allow tax-deferred growth, while others offer tax-deductible contributions and tax-free growth.

Are you planning for your retirement? If so, be sure to read my guide on how to retire at 50 in Canada next!

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