RRSP Contribution Optimizer

A Registered Retirement Savings Plan (RRSP) is a Canadian retirement savings account. Contributions are tax-deductible, meaning they reduce your taxable income in the year you contribute.

Investment growth inside the RRSP is tax-sheltered. You only pay tax when you withdraw funds, typically in retirement when your income (and tax rate) may be lower. This "tax deferral" is one of the core benefits of an RRSP.

Each year you earn RRSP contribution room equal to 18% of your previous year's earned income, up to the annual maximum ($32,490 for 2025, $33,810 for 2026), minus any pension adjustment (PA).

Unused room carries forward indefinitely. You can find your current RRSP deduction limit on your latest Notice of Assessment from the CRA, or by logging into your CRA My Account.

Over-contributions exceeding $2,000 above your limit are penalized at 1% per month on the excess.

Most people know their marginal tax rate, the percentage of tax they pay on each additional dollar of income based on federal and provincial tax brackets. Your Marginal Effective Tax Rate (METR) goes further: it includes not only income tax, but also the reduction in government benefits that happens as your income rises.

Several government benefits are income-tested, meaning the government gradually reduces (or "claws back") the amount you receive as your income increases. The two biggest ones are the Canada Child Benefit (CCB), which can be clawed back at rates of 7% to 23% depending on how many children you have, and the GST/HST Credit, which is clawed back at 5% above the income threshold. These clawbacks act like hidden taxes, for every extra dollar you earn, you lose a portion of these benefits on top of the income tax you pay.

For example, a family with two children earning $60,000 might have a marginal tax rate of 29.65% (federal + provincial), but their METR could be over 48% once the 13.5% CCB clawback and 5% GST clawback are added in.

This matters for RRSP decisions because when you contribute to an RRSP, your taxable income drops. This not only reduces your income taxes, but also restores the government benefits that were being clawed back. Your METR captures both effects, showing you the true value of each RRSP dollar, which is often significantly higher than what a basic tax calculator would suggest.

Both RRSPs and TFSAs shelter your investments from tax, but they work in opposite ways. Understanding the difference helps you decide where each dollar should go.

• RRSP: Contributions are tax-deductible now, but withdrawals are taxed as income later. This works in your favour when your tax rate today is higher than it will be in retirement, you get a bigger deduction now and pay less tax when you take the money out.
• TFSA: Contributions are made with after-tax dollars (no deduction), but all investment growth and withdrawals are completely tax-free forever. This makes TFSAs ideal for short and medium-term goals, emergency funds, or when you expect to be in the same or higher tax bracket in retirement.
• METR advantage: If you are in a high METR zone, for example, a family with children in the CCB clawback income range, RRSP contributions can be especially powerful because they restore clawed-back benefits on top of the tax savings. A basic tax calculator would miss this extra value entirely.
• RRSP withdrawals affect benefits: Keep in mind that RRSP withdrawals in retirement count as taxable income, which can reduce income-tested benefits like OAS and GIS. TFSA withdrawals do not affect these benefits at all.
• General rule: If you are in a lower tax bracket, maximize your TFSA first. When your income (and METR) is higher, prioritize your RRSP. Many Canadians benefit from contributing to both.