The Registered Retirement Savings Plan is one of the most powerful wealth-building tools in the Canadian tax code. A well-managed RRSP can save you tens of thousands of dollars over your working life through deductible contributions and decades of tax-deferred compounding.
But the rules are strict, and the most common mistakes are also the most expensive. Whether you are opening your first account or reviewing a strategy you have held for years, these are the errors that cost Canadians the most — and what to do instead.
1. Over-contributing beyond your limit
Each year the CRA calculates your RRSP contribution room as 18% of your previous year's earned income, up to an annual dollar ceiling. For 2026 that ceiling is $33,810, up from $32,490 in 2025. Our full guide to 2026 RRSP contribution room walks through the calculation with worked examples.
The mistake
Contributing more than your available room. The CRA allows a lifetime $2,000 cumulative buffer, but anything beyond that triggers a penalty of 1% per month on the excess.
The fix
Your exact deduction limit appears on your latest Notice of Assessment and in CRA My Account. Use that figure, not your own estimate — a workplace pension creates a Pension Adjustment that reduces your room, often by more than people expect.
2. Leaving an employer match on the table
Many Canadian employers offer a Group RRSP that matches contributions, commonly 50% or 100% up to a percentage of salary. Every dollar of an unclaimed match is compensation you have been offered and declined.
The mistake
Contributing less than the amount your employer is willing to match, usually because payroll deductions feel tight month to month.
| Salary | Match offered | You contribute | Employer adds | Left behind |
|---|---|---|---|---|
| $70,000 | 100% up to 5% | 5% ($3,500) | $3,500 | $0 |
| $70,000 | 100% up to 5% | 2% ($1,400) | $1,400 | $2,100 / year |
An immediate 100% return is not available anywhere else in your financial life. If cash flow is genuinely tight, contribute at least up to the match before directing money anywhere else — including debt repayment in most cases.
3. Using your RRSP as an emergency fund
Treating your RRSP like a savings account you can dip into is expensive, and the damage is permanent. Your institution withholds tax immediately at these rates:
| Withdrawal amount | Withholding (outside Quebec) | Withholding (Quebec) |
|---|---|---|
| Up to $5,000 | 10% | 5% federal + provincial |
| $5,001 – $15,000 | 20% | 10% federal + provincial |
| Over $15,000 | 30% | 15% federal + provincial |
Most critically: unlike a TFSA, RRSP contribution room is permanently lost when you withdraw. Pull $10,000 out for a car repair and that $10,000 of room never returns.
4. Assuming withholding tax settles your bill
This is the most misunderstood rule on the list. The tax withheld at withdrawal is a prepayment, not a final settlement. The withdrawal is added to your income for the year and taxed at your marginal rate.
The CRA states this directly: the tax withheld "may not always be enough to account for the tax you owe at your tax bracket," and you may owe more when you file.
What that looks like
Withdraw $20,000 while sitting in a 43% marginal bracket and your institution withholds 30% — $6,000. But you owe roughly $8,600. The remaining $2,600 lands as a balance owing at filing time, often as an unpleasant surprise the following April.
5. Skipping the spousal RRSP strategy
If one spouse earns significantly more than the other, contributing only to the higher earner's RRSP is a missed opportunity.
How it works
The higher earner contributes to an account in the lower earner's name. The contributor takes the deduction today at their higher rate, and the funds are eventually taxed at the lower spouse's rate in retirement — splitting income that would otherwise be taxed in one high bracket.
6. Contributing in a low-income year without deferring the deduction
Contributing and deducting in the same year is the default, but it is not always optimal. In a year when your income is unusually low — parental leave, a career break, your first year of work, a business loss — the deduction is worth comparatively little.
The fix
Make the contribution now so the money starts compounding, but carry the deduction forward to a year when you are in a higher bracket. The contribution and the deduction are two separate decisions, and most people never realise they can be separated.
7. Mishandling the Home Buyers' Plan
The Home Buyers' Plan lets a first-time buyer withdraw up to $60,000 from an RRSP without withholding tax. Two things routinely go wrong.
Withdrawing funds that have not been in the account 90 days. Contributions generally must sit in the RRSP for at least 90 days before an HBP withdrawal, or the deduction can be denied.
Missing the annual repayment. The withdrawal must be repaid over 15 years. Miss a scheduled repayment and that year's amount is added to your taxable income — taxed at your full marginal rate, with the room permanently lost.
8. Ignoring investment choice and asset location
An RRSP is an account, not an investment. What you hold inside it matters as much as how much you put in, and two errors are common.
Leaving contributions in cash. Money that lands in the account and is never invested earns near-nothing while inflation erodes it. Contributing is one step; investing the contribution is a second, separate step.
Ignoring asset location. US-listed dividend payers are generally treated more favourably inside an RRSP than in a TFSA, because the Canada–US tax treaty exempts RRSPs from the 15% US withholding tax on dividends. That exemption does not extend to TFSAs.
High-fee funds compound against you in the same way returns compound for you. A 2.3% management expense ratio versus 0.2% on a $200,000 balance is roughly $4,200 a year in fees.
9. Spending your tax refund
An RRSP contribution generates a refund because you deducted the contribution from taxable income. Treating that refund as a windfall quietly halves the strategy's value.
A $10,000 contribution at a 40% marginal rate returns roughly $4,000. Spend it and your retirement savings grew by $10,000. Reinvest it — into next year's RRSP, your TFSA, or your mortgage — and the same contribution does substantially more work.
10. Not naming or updating a beneficiary
Without a named beneficiary, your RRSP generally falls into your estate, where it may be fully taxable on your final return and exposed to probate.
Naming a qualified beneficiary — a spouse or common-law partner, a financially dependent child or grandchild, or in some cases a dependent with a disability — can allow a tax-deferred rollover instead.
11. Missing the maturity deadline
You must collapse your RRSP by December 31 of the year you turn 71, choosing one of three paths: convert to a RRIF, purchase an annuity, or withdraw the full balance in cash.
Take it in cash and the entire balance becomes taxable income in a single year — frequently the most expensive tax event of a person's life. Converting to a RRIF is the default for good reason. If you have just missed a contribution deadline, here is what to do next.
Quick reference
| Mistake | What it costs | The fix |
|---|---|---|
| Over-contributing | 1% per month on the excess | Use the limit on your Notice of Assessment |
| Skipping employer match | Up to 100% guaranteed return | Contribute at least to the match |
| Early withdrawal | 10–30% withheld, room lost forever | Keep emergency cash in a TFSA |
| Assuming withholding is final | Surprise balance owing in April | Set aside the difference at withdrawal |
| No spousal RRSP | Higher household tax in retirement | Split future income between spouses |
| Deducting in a low-income year | A deduction worth far less | Contribute now, deduct later |
| HBP repayment missed | Added to income, room lost | Track the 15-year schedule |
| Uninvested contributions | Years of forgone growth | Invest after every contribution |
| Spending the refund | Roughly 40% of the benefit | Reinvest it |
| No beneficiary | Probate and full taxation | Name a qualified beneficiary |
| Missing age 71 | Entire balance taxed at once | Convert to a RRIF in time |
Frequently asked questions
It appears as your "RRSP deduction limit" on your most recent Notice of Assessment, and in CRA My Account. Do not estimate it — a workplace pension reduces your room through the Pension Adjustment.
No. Ordinary RRSP withdrawals permanently remove that contribution room. This is a key difference from a TFSA, where withdrawals restore room the following calendar year. Withdrawals under the Home Buyers' Plan and Lifelong Learning Plan work differently and are repayable.
As a general rule, an RRSP tends to favour higher earners who expect a lower tax rate in retirement, while a TFSA suits lower current income or money you may need before retirement. If your employer matches RRSP contributions, capture the full match before choosing between the two. We compare all three accounts side by side in TFSA vs. RRSP vs. FHSA.
Amounts within the $2,000 lifetime buffer are not penalised, though they are not deductible. Beyond that, the 1% monthly penalty applies until the excess is withdrawn. Withdraw the excess promptly and file Form T3012A or T1-OVP as applicable — the penalty accrues every month it remains.
Not to your own RRSP — it must be collapsed by December 31 of the year you turn 71. If you have a younger spouse and available room, you can continue contributing to a spousal RRSP until the end of the year they turn 71.
