How your limit is set
CRA calculates your RRSP deduction limit each year as:
- your unused room from earlier years, plus
- 18% of your earned income from the previous year, up to the annual maximum ($33,810 for 2026), minus
- any pension adjustment, if you're in a workplace pension.
You don't have to work this out. The number is on your notice of assessment.
What the refund is
A contribution is deducted from your income, so you get back the tax you'd already paid on that money. Contribute $5,000 at an assumed 30% marginal rate and the refund is about $1,500. That is an illustration. Your rate depends on your income and province. For an estimate with your own numbers, try the RRSP refund estimator.
The refund isn't a bonus. It's the government's share of the account, handed to you to hold until you withdraw.
The tax-rate test
Take $5,000 of pay, taxed at 30% today. Put it in a TFSA (after tax) or an RRSP (before tax, with the refund invested too). Both hold the same investment, and it doubles.
Same rate in and out: the two accounts tie. Lower rate later: the RRSP wins. Higher rate later: the TFSA wins. The comparison only holds if the RRSP refund is invested, not spent.
Other things can tip it. An employer match on RRSP contributions is extra money. RRSP withdrawals count as income, which can reduce income-tested benefits in retirement. And nobody knows their future tax rate for certain.
Three rules people miss
- You can deduct later. You don't have to claim a contribution in the year you make it. You can carry the deduction to a year when your income, and your tax rate, is higher.
- The deadline is early in the next year. Contributions in the first 60 days of a year can count for the year before. For the 2026 tax year, that's March 1, 2027.
- There's a small buffer, then a penalty. CRA charges 1% a month on contributions that exceed your limit by more than $2,000.
What a withdrawal costs
Your bank holds back tax when you withdraw: 10% on amounts up to $5,000, 20% on amounts over $5,000 up to $15,000, and 30% above that (the rates differ in Quebec). The withdrawal is then added to your income for the year, so you may owe more at tax time.
And unlike a TFSA, the room you used doesn't come back when you take money out. The two exceptions are the Home Buyers' Plan (next lesson) and the Lifelong Learning Plan.
The last year you can contribute to your own RRSP is the year you turn 71.
Do this before the next lesson
- Find your RRSP deduction limit on your latest notice of assessment.
- Look up your marginal tax rate for this year (federal plus provincial) using your income.
- Write one honest sentence: "In retirement I expect my rate to be higher / lower / about the same, because ___."
You contribute at a 30% tax rate and withdraw years later at a 20% tax rate. Compared with a TFSA holding the same investment, the RRSP leaves you:
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Where this comes from
- Canada Revenue Agency: How contributions affect your RRSP deduction limit
- Canada Revenue Agency: MP, DB, RRSP, DPSP, ALDA, TFSA limits and the YMPE (RRSP dollar limit for 2026: $33,810)
- Canada Revenue Agency: Questions and answers about contributing to an RRSP (deducting in a later year; age 71)
- Canada Revenue Agency: Excess contributions (1% a month above the $2,000 buffer)
- Canada Revenue Agency: Tax rates on withdrawals
- Tax-rate illustration: Planted North calculation with assumed rates; not a forecast