Why RRSPs Might Be Costing You More Than You Think
by Brad Bidner
3 min read
For years, Canadians have been told that Registered Retirement Savings Plans (RRSPs) are the best way to save for retirement. The promise? Contribute now, get a tax break, and enjoy a comfortable retirement later. But what if RRSPs aren’t as beneficial as they seem?
What if they’re actually costing you more in taxes, penalties, and lost financial opportunities?
Let’s break down the hidden costs of RRSPs and explore smarter alternatives that put you in control of your money.
1. The RRSP Tax Trap: Deferred, Not Avoided
Many people contribute to an RRSP because they’re told they’ll get an immediate tax deduction. But here’s the problem:
✅ You’re not avoiding taxes - you’re just delaying them.
✅ You might end up paying higher taxes in retirement.
Here’s why: When you withdraw from your RRSP in retirement, every dollar is taxed as regular income. If you’ve built a solid nest egg, those withdrawals could push you into a higher tax bracket - meaning you’ll owe the CRA even more.
Example:
You contribute $10,000 today and save $3,000 in taxes (assuming a 30% tax bracket).
In retirement, you withdraw $10,000, but now your tax rate is 40% - so you pay $4,000 in taxes.
You saved $3,000 earlier but paid $4,000 later. That’s a net loss of $1,000.
This is why RRSPs can be a tax trap because you defer taxes at a lower rate but pay them later at a higher one.
2. RRSP Withdrawals Come With Strings Attached
Unlike a Tax-Free Savings Account (TFSA) or a properly structured Capital Control System, RRSPs come with strict rules:
🚫 Early Withdrawals Get Penalized – Need your money before retirement? The CRA will withhold 10%–30% of your withdrawal immediately, and you’ll owe even more at tax time.
🚫 Forced Withdrawals at Age 71 – Whether you need it or not, at age 71, your RRSP must be converted into a Registered Retirement Income Fund (RRIF), and you’ll be forced to withdraw a minimum amount every year—even if it pushes you into a higher tax bracket.
Your money isn’t fully yours - the government controls when and how you can access it.
3. RRSPs Don’t Provide Financial Flexibility
Your financial needs change throughout life. RRSPs lock your money away, making it difficult to use when you need it most.
Imagine:
You want to invest in a business or rental property but can’t access your RRSP without penalties.
You face unexpected expenses but withdrawing means losing thousands to taxes.
You want to fund your lifestyle before 65 but your money is trapped inside your RRSP.
This lack of flexibility is why many self-employed Canadians and high-income earners look for alternative wealth-building strategies.
4. RRSPs Leave You at the Mercy of the Market
Most RRSPs are invested in stocks, mutual funds, or ETFs, meaning your retirement savings are subject to market volatility.
📉 If the market crashes before or during retirement, you could lose a significant portion of your wealth.
Contrast this with a properly structured Capital Control System, where your money:
✅ Grows tax-free every year, regardless of the stock market.
✅ Remains accessible when you need it.
✅ Provides stable, predictable growth.
For business owners, self-employed professionals, and high-income earners, having a secure, liquid wealth system is more important than gambling on market swings.
A Smarter Alternative: The Capital Control System
Instead of locking your money in an RRSP, many Canadians are using the Capital Control System to build tax-free wealth while maintaining full control over their money.
Here’s how it works:
✔️ Your money grows tax-free, just like a TFSA but with no contribution limits.
✔️ You can access your money anytime without penalties.
✔️ You can borrow from yourself instead of relying on banks.
✔️ You maintain full control over your wealth no forced withdrawals, no CRA interference.
This strategy gives you the best of both worlds - tax-free growth and total financial flexibility.
The Bottom Line: RRSPs Aren’t Always the Best Option
While RRSPs may work for some, they aren’t always the best choice for self-employed Canadians, business owners, and high-income earners.
If you want:
✅ Tax-free growth without restrictions
✅ A financial system that works for you - not the banks or the CRA
✅ Access to your money whenever you need it
Then it’s time to explore a better strategy.