The abbreviations RSP and RRSP might look pretty similar, but the differences between the products they describe can impact your savings goals.
RSP is a bit of an ambiguous acronym because it can indicate either “registered savings plan” or “retirement savings plan.” In contrast, RRSP always stands for registered retirement savings plan, a strictly defined type of registered account with clear rules and tax benefits.
RSP vs. RRSP
The main differences between a registered savings plan, a retirement savings plan and a registered retirement savings plan (RRSP) lies in their specific features and tax benefits.
A retirement savings plan is a broad umbrella term that is often used to describe accounts used to hold savings intended for retirement. A retirement savings plan could be registered, like a tax-free savings account (TFSA), which means it offers tax benefits. The term retirement savings plan is also sometimes used to refer to pension plans or registered retirement income funds (RRIFs) that are designed to provide a source of income during retirement.
Additionally, retirement savings plans can be non-registered, like a high-interest savings account or investment accounts that you may use for retirement savings.
While registered savings plan and retirement savings plan are both broad-ranging terms that cover several different types of accounts, an RRSP is a specific, tax-deferred account designed to be used when you are no longer earning employment income (usually during retirement, but not exclusively so).
Nerdy Tip: An RRSP is a specific account that is both a registered savings plan and a retirement savings plan, but an RSP isn’t necessarily an RRSP.
What is a registered savings plan?
The term registered savings plan generally refers to a variety of tax-advantaged savings plans put in place by the government and available through various financial institutions across Canada. These plans have strict contribution and withdrawal rules, and some have rules about how you can use the funds. Some of the common types of registered savings plans include:.
Tax-free savings accounts (TFSAs). These savings and investment accounts allow tax-free growth on contributions. Contributions are subject to a yearly limit. Withdrawals, including investment gains, are not subject to income tax.
Registered retirement savings plans (RRSPs). These retirement investment accounts are designed for saving towards your future goals while lowering your taxable income. Contributions to an RRSP are tax-deductible, but are limited to either a yearly preset amount or 18% of your income from the previous year (whichever is lower).
Registered education savings plans (RESPs). A plan that assists Canadians to save money for a child’s post-secondary education. It offers tax-free growth on contributions, government grants like the Canada Education Savings Grant (CESG) and tax advantages for withdrawals made to settle educational expenses.
Registered disability savings plans (RDSPs). A savings program intended to help people with disabilities (who are eligible for the Disability Tax Credit) and their families with long-term financial planning. This plan offers tax advantages, government grants and bonds to increase savings.
What is a retirement savings plan?
Retirement savings plans are solely geared to saving money for retirement. Some examples include:
Registered pension plan (RPP). This tax-advantaged retirement savings vehicle is established by employers for their employees. RPPs come in two types: defined benefit plan and defined contribution plan. Defined benefit plans guarantee a set pension amount and usually no employee contributions are allowed. Defined contribution plans are based on employee contributions and investment earnings.
Pooled registered pension plan (PRPP). This registered plan is a collective retirement savings initiative for employed and self-employed Canadians in some provinces and territories. It allows participants from various employers to contribute to a shared investment pool. Your contributions are tax-deductible but you have the same contribution limitations as you do with an RRSP.
Registered retirement income fund (RRIF). An investment option that lets people convert their RRSP into retirement income. After turning 71, individuals must transfer their RRSP funds into an RRIF. You must meet minimum annual withdrawal rules and withdrawals will be taxed as income.
Note that RRSPs are also retirement savings plans — but since they’re also registered, we opted to include them in the previous section.
Key takeaways for RSPs and RRSPs
Here are the key differentiators for registered savings plans, retirement savings plans and RRSPs.
- Retirement savings plans may be registered or not registered. Registered savings plans are registered by definition, as are RRSPs.
- Registered savings plans may not be intended solely for retirement; for example, you might use your TFSA to save for a vacation.
- Each type of registered savings plan has specific withdrawal and contribution rules.
- RRSPs have strictly defined rules about how much you can contribute and withdraw.
- Non-registered retirement savings plans, such as high-interest savings accounts and GICs that you may contribute to for your future retirement, don’t offer tax benefits or have contribution or withdrawal rules — unless included in a registered plan.
Non-registered account and investment options
A non-registered account makes for a worthwhile alternative to registered options for retirement savings and investments. Options include:
Guaranteed investment certificates (GICs). Low-risk financial products in which you invest a fixed amount of money for a specified term for a guaranteed interest rate. The principal amount is typically protected, making it a relatively safe investment option. GICs come with various lock-in term lengths and you can opt for registered or non-registered options.
High-interest savings accounts. Savings accounts with higher interest rates (usually above 1%) than a regular savings account. HISAs offer lower interest rates than GICs but much easier access to your funds.
Savings accounts. Regular savings accounts are designed to help set aside some money and grow the savings with a modest rate of interest while allowing the freedom to withdraw funds at any time.
Frequently asked questions about RRSP vs. RSP
The abbreviation RSP in a product name can mean it is a registered savings plan or a retirement savings plan. A retirement savings plan may be registered or non-registered. Both are umbrella terms for multiple types of accounts. In contrast, an RRSP is a specific account that must be registered and has clearly defined rules regarding contribution and withdrawal requirements by the government of Canada.
Yes, you can have more than one registered savings plan. For example, you can have an RESP, one or more TFSAs and RRSPs. However, you must not exceed the contribution rules for each type of registered savings plan. So even if you have two RRSPs, your contribution limit is the total amount you can contribute to both plans, and exceeding it can lead to contribution penalties.
DIVE EVEN DEEPER
Your savings grow tax-free in a registered GIC, but there are contribution limits. With a non-registered GIC, you can contribute as much as you’d like, but earnings are taxed.