How RRSPs Work — and Why They’re Still Relevant
- Brett Volpe
- 12 minutes ago
- 3 min read
Every RRSP season, we hear some version of this:
“I don’t really believe in RRSPs.”
Usually it comes with a follow-up like:Why would I put money into something that just gets taxed when I take it out?
Fair question. And honestly, it makes sense on the surface. But this is one of those cases where the details matter — a lot.
At Volpe Financial Solutions, we’re not interested in pushing products. We’re interested in helping people understand how things actually work, so they can make better decisions with their money.
The Part About RRSPs That Gets Missed
Yes, RRSP withdrawals are taxable. No argument there.
But that’s only half the story.
When you contribute to an RRSP:
You don’t pay tax on that income today
Your entire contribution gets invested
Your investments grow without being taxed every year
That tax deferral is the real benefit. Over time, it adds up.
If your tax rate when you withdraw is the same as when you contributed, the RRSP works out almost like a tax-free investment.
If your tax rate is lower in retirement (which is pretty common), you’re even further ahead.
And here’s the part that surprises a lot of people:even if your tax rate is higher later, the RRSP can still come out ahead compared to investing in a non-registered account — simply because your money had more room to grow.
A Simple Comparison (No Overthinking Required)
Let’s keep this practical.
Say you earn $3,000, your tax rate is about 33%, and you invest for one year at 5%.
RRSP
You invest the full $3,000
It grows to $3,150
You withdraw and pay tax
You’re left with about $2,100
Non-Registered Account
You pay tax first
You invest about $2,000
It grows to $2,100
You pay a bit more tax on the gain
You’re left with about $2,083
Not a huge difference in one year — but it’s there.
Now imagine that difference compounding for 10, 20, or 30 years.
A Better Way to Think About Your RRSP
One of the simplest ways to understand an RRSP is to think of it as a shared account between you and the government.
Your portion grows tax-free
The government’s portion (the deferred tax) grows too
You settle up when you withdraw
Your RRSP balance isn’t “spendable dollars” yet — it’s pre-tax dollars. What matters is what you keep after tax.
The upside?
Your share compounds without annual tax slowing it down.
That’s the advantage.
When an RRSP Isn’t the First Move
RRSPs aren’t automatically the best choice for everyone.
If your income is low right now, or you expect to earn much more later, a TFSA might make more sense early on. Flexibility matters too.
This isn’t about choosing one account and ignoring the rest.It’s about using the right tools at the right time.
The Bottom Line
RRSPs aren’t broken.They’re just often misunderstood.
When used properly — alongside TFSAs and other investments — they’re still one of the
most effective long-term planning tools Canadians have.
If you’ve written them off completely, it may be worth taking another look, with real numbers and a plan that actually fits your life.
Disclaimer:
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was written by Brett Volpe], for the benefit of Brett Volpe, Financial Advisor with Volpe Wealth Management, a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.
Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
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