Jan 16, 2026
Smart RRSP Planning: Avoid These 5 Costly Errors
Planning for retirement in Canada requires smart financial decisions. One of the best tools available is the Registered Retirement Savings Plan (RRSP). However, many Canadians make common RRSP mistakes that can reduce their savings and increase their tax burden.
Retirement planning can often feel overwhelming, but understanding the RRSP and its benefits is a crucial first step. The RRSP not only helps you save for retirement but also provides you with flexible options to grow your wealth over time. As you navigate your financial future, consider how each aspect of your RRSP can be optimized to support your long-term goals.
At Bonjour Assurance Inc, we help clients understand how to avoid RRSP mistakes and build a stronger financial future.
Understanding these RRSP mistakes to avoid is crucial for maximizing your retirement savings.
Below are the 5 most common RRSP mistakes to avoid that every Canadian should be aware of and how you can prevent them.
For many Canadians, it might be beneficial to consult with a financial advisor to maximize the potential of their RRSP. With tailored advice, you can ensure that your investments align with your risk tolerance and financial objectives, making your RRSP a valuable tool in your retirement strategy.
The Value of an RRSP
Key RRSP Mistakes to Avoid
An RRSP offers two powerful advantages:
- Contributions reduce your taxable income
- Investments grow tax-deferred until you withdraw them in retirement
Used properly, an RRSP can play a key role in achieving long-term financial security.
It’s also important to consider diversifying your investment portfolio within your RRSP to mitigate risks and enhance growth potential. By exploring various asset classes, such as real estate, technology, and healthcare stocks, you can create a balanced approach that reflects market trends and personal interests.
1. Contributing – But Not Investing
A frequent mistake is depositing money into an RRSP and leaving it in cash.
While the contribution may reduce your taxes, the real benefit of an RRSP comes from investing those funds so they can grow over time.
Inside an RRSP, you can hold many types of investments, such as:
- Mutual funds
- Stocks and bonds
- Guaranteed Investment Certificates (GICs)
- Other managed investment products
If you’re unsure where to invest your RRSP savings, a Bonjour Assurance advisor can help you create a strategy suited to your goals and comfort level.
2. Withdrawing Funds Too Early
Using RRSP money before retirement can be expensive.
Early withdrawals usually result in:
Understanding the penalties associated with early withdrawals is essential to avoid costly mistakes. Educate yourself about the implications of accessing these funds prematurely and weigh the pros and cons carefully before making such decisions.
- Immediate withholding taxes
- Loss of long-term tax-deferred growth
- Higher taxable income for the year
This can create a larger tax bill than expected.
When Early Withdrawals Make Sense
There are two government programs that allow tax-efficient withdrawals:
- Home Buyers’ Plan (HBP) – to purchase a first home
- Lifelong Learning Plan (LLP) – to fund education or training
Both programs require the withdrawn funds to be repaid to your RRSP over time.
Outside of these exceptions, early withdrawals should generally be a last resort.
3. Contributing More Than Your Limit
Your RRSP contribution room is not unlimited.
Most Canadians can contribute:
Up to 18% of last year’s earned income, subject to the annual CRA maximum
However, workplace pension plans and other factors can reduce this limit. Over-contributing can lead to penalties and unnecessary complications.
To avoid problems:
- Check your Notice of Assessment each year
- Understand how employer pension plans affect your limit
Moreover, staying informed about changes in tax laws can help you make better decisions regarding your RRSP contributions and withdrawals. Regularly reviewing your financial plan can ensure that you remain on track to meet your retirement objectives.
Get professional advice before making large contributions
4. Spending Your Tax Refund
Many people view their RRSP tax refund as extra spending money.
But there is a smarter option.
Reinvesting your tax refund back into your RRSP can:
- Accelerate your savings growth
- Increase the power of compound interest
- Help you reach retirement goals faster
Turning your refund into additional savings is one of the easiest ways to maximize the benefit of an RRSP.
5. Poor Beneficiary Planning
RRSPs are not just about retirement—they are also part of your estate plan.
If beneficiary designations are not set up correctly, your RRSP could become fully taxable upon death, reducing what your loved ones receive.
Proper planning can help:
- Minimize taxes
- Protect your family
- Ensure your savings are transferred smoothly
A professional review of your RRSP and estate plan can prevent costly surprises later on.
Make Your RRSP Work Harder for You
RRSPs are powerful—but only when used wisely.
By avoiding these common mistakes, you can:
- Lower your taxes
- Build stronger long-term savings
- Enjoy greater financial confidence
Finally, consider the impact of market fluctuations on your RRSP investments. Keeping a close eye on your portfolio performance and adjusting your strategy accordingly can enhance your ability to reach your retirement goals.
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