Everything You Need to Know About RRSP Contributions

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Lisa MacColl is a writer, investor and former compliance consultant in the group retirement and individual wealth management fields. Lisa has written about personal finance for 14 years and currently writes about investing and investment providers for Wealthsimple. Lisa's past work has been published in Canadian Money Saver, Advisor’s Edge, CBC, and CreditCards.ca. She was a nominee for the 2015 Oktoberfest Women of the Year, Professional Category. Lisa holds an M.A. and B.A. from the Wilfrid Laurier University.

In Canada, a Registered Retirement Savings Plan (RRSP) is a great retirement savings vehicle. Since they’re tax-advantaged accounts, RRSPs are almost like a gift from the Canadian government. And who doesn’t love free money? But if all the talk about contribution and deduction limits has your head spinning — you’ve come to the right place. There are two components to RRSP limits: the RRSP deduction limit and the individual contribution limit. Here’s what you should know about them.

What are the tax advantages of an RRSP?

First, let’s get into the benefits of an RRSP before we dive too deep into the nitty-gritty of how it all works.

It’s important to have a big-picture understanding of why you should contribute and how to make your money work harder for you. (If you’re wondering how an RRSP stacks up against a Tax-Free Savings Account or First Home Savings Account, you can compare all three here.) For now, we’re going to focus on why an RRSP can be a smart bet:

Any money you contribute to an RRSP will be tax-exempt in the year you make the contribution. That means if you used after-tax dollars to make your RRSP contribution, the government will deduct the taxes you paid from your tax bill. You’ll only be taxed when it comes time to take the money out (though there are even some withdrawal benefits at retirement or if you dip into it early to pay for a home or schooling).

So while you’ll have to pay taxes on your money later, an RRSP helps reduce your current taxable income right now and helps you take advantage of tax-free compounding. The more time your money has to compound, the larger your final total will be without you having to sock away larger sums later. Another bonus: you often pay a lower tax rate in retirement, so you may avoid being taxed at a higher rate now.

What is the RRSP contribution limit?

For 2024, the RRSP contribution limit is $31,560. Contributions to an RRSP reduce the amount of income tax individuals must pay each year, so the Canada Revenue Agency (CRA) sets an annual limit on the contribution amount each eligible taxpayer can make to RRSPs to avoid excess contributions.

Your contribution limit is the amount you are able to deposit into your RRSP in a given year. Every year, you build “contribution room” equal to the lesser of 18% of your income or the yearly max. Any amount you do not contribute carries forward indefinitely and will be added to your maximum contribution amount. In other words, there’s thankfully not a use-it-or-lose-it rule. You can still eventually put that money away for retirement even if you don’t have the cash to contribute now.

A few things to keep in mind: if your employer has a Group RRSP, Registered Pension Plan, or Deferred Profit-Sharing Plan, those contributions reduce the amount you can contribute to an individual RRSP. Those amounts are recorded on the documents you receive from your employer at tax time.

You can have more than one RRSP account. It’s possible to have “regular” RRSP accounts in your name and also contribute to a Spousal RRSP, which is set up in your spouse’s name. You can make contributions and receive the tax deduction (more on that below). There are some specific rules around withdrawals from spousal RRSPs that you should know in addition to annual contribution limits.

The contribution deadline for contributing to your RRSP can be found on the CRA website. For 2023's taxes, the last day to contribute to your RRSP is February 29, 2024. Also keep in mind that December 31 of the year you turn 71 is the last day you can contribute to your own RRSP.

How do I calculate my individual RRSP contribution limit?

To calculate your RRSP contribution room, you will need to know how much you previously contributed, as well as the contribution limits for each year. Rather than calculate your RRSP contribution limit yourself, there’s a much easier way: the CRA keeps track of your contribution limit for you.

They will report it on the Notice of Assessment you receive from the CRA after you file your taxes each year under the heading “Available Contribution Limit.”

Certain transactions, such as transfers from another RRSP, a transfer due to divorce or the death of a spouse, retiring allowances, or transfers of property do not affect your contribution room.

You can also check your RRSP contribution limit online. Set up an account with the CRA. Once you have the online account, you can check the status of your refund, check for benefit amounts, see previous years’ tax information and notices of assessment, and make payments to your tax account. If you'd rather go the “old school” route, you can also call the CRA at 1-800-267-6999 (in Canada and the USA) or use Chart 3 in the RRSP Guide T4040, “RRSPs and Other Plans for Retirement.”

Where do I report RRSP contributions?

You report all RRSP contributions on line 208 of your T1 General Income Tax Return. Your financial institution will provide you with RRSP receipts.

Contributions made from March to December in each year are reported in the calendar year they are made. Contributions for the first 60 days of the next year must be claimed on the previous year's tax return but can be carried forward and used on the same calendar year's return.

Remember: your contribution limit applies to the combined total of all contributions you make to the RRSPs in your name and any spousal accounts you contribute to.

What happens if I go over my contribution limit?

While there’s no penalty if you don’t contribute the max, you definitely don’t want to over-contribute because it can come with harsh penalties.

If you over-contribute to your RRSP by more than $2,000, you will pay a 1% per month penalty on the excess amount (ouch).

If you exceed your contribution limit for the year, you have three options:

  1. Withdraw the over-contribution. You can complete government form T3012A to remove the over-contribution without upfront withholding tax. Penalties on the over-contributed amount may still apply.

  2. Complete a Schedule 7. Designate the amount of contribution you want to carry forward to a subsequent tax year. This amount will be reported on your Notice of Assessment and will reduce your contribution room for the next tax year.

  3. Complete Schedule 7 if you have participated in the Home Buyers’ Plan or the Lifelong Learning Plan and these contributions are a repayment.

It’s always best to consult a financial advisor or tax specialist if you have questions about your tax situation.

What's the RRSP contribution age limit?

The RRSP contribution age limit is 71. You can contribute to an RRSP until December 31 of the calendar year when you turn 71. If you have a spouse under the age of 71, you can make spousal contributions to their RRSP until December 31 of the year they turn 71.

At the end of the year you or your partner turn 71, you must convert your RRSP to a Registered Retirement Income Fund or you can withdraw the full amount, but it must be reported as income and will be subject to income tax at your marginal tax rate.

What is an RRSP deduction limit? Is that the same as a contribution limit?

Your deduction limit is the amount you could possibly claim as a tax deduction from your income in a given year. Someone’s deduction limit and contribution limit are the same provided they fully deduct the contributions they made to their RRSP from their income each year. But the deduction limit can be different from the contribution limit in the event you choose to not max out your RRSP contribution or choose to make a contribution and not deduct it from your income in a given year.

If you have both a regular RRSP and a spousal RRSP, the deduction limit is the maximum amount you can contribute to all your accounts combined.

Can you give me an example?

Jim is employed full time. In 2023, he earned $50,000, pre-tax. His employer does not provide a pension plan and he doesn’t have any unused contribution room rolling over from previous years. To determine his contribution limit, he would go with 18% of $50,000 or $31,560, whichever is less.

Let's do the math: $50,000 x 18% = $9,000. That is less than the maximum limit of $30,780, so his RRSP contribution limit is $9,000 for 2023.

Because Jim doesn’t have any pension adjustments, his total deduction limit is also $9,000. If Jim makes a $5,000 contribution to his RRSP, he'll have $4,000 unused eligible contribution room.

In 2024, he’s able to carry forward that $4,000 and add it to his contribution limit. If his contribution limit remains $9,000, he will be able to contribute a total of $13,000 to his RRSP ($9,000 + $4,000 carry forward = $13,000).

Last Updated January 19, 2024

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