Everything You Need to Know About RRSP Contributions

In Canada, a Registered Retirement Savings Plan (RRSP) is a great retirement savings vehicle. Since they're tax-advantaged accounts, they are almost like a gift from the Canadian government! 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 exactly is an RRSP contribution limit?

Your Contribution Limit is the amount you are able to deposit to 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 ($30,780 in 2023). Any amount you do not contribute carries forward indefinitely. For example, Bill earned $100,000 in 2022 and started 2023 with $15,000 in leftover contribution room. For 2023, his contribution limit would be ($100,000 x 18%) + (15,000 - 10,000) = $23,000.

Just don't over-contribute as it comes with harsh penalties. As Enoch Omololu of Savvy New Canadians explains:

"Pay attention to your RRSP contributions and avoid over contributing. The penalty tax is one thing, but filling out the complicated T1-OVP form is a lot more painful if you don't realize your error on 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, and you make the contributions and receive the tax deduction. 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 2022, the last day to contribute to your RRSP is March 1, 2023. Also keep in mind that December 31 of the year you turn 71 is the last day you can contribute to your own RRSP.

Past RRSP Deduction Limits

The 2022 & 2023 deduction limit explained

Your Deduction Limit is the amount you could possibly deduct from your income in a given year. Someone’s deduction limit and contributions limit are the same provided they fully deduct the contributions they made from their income each year. But deduction limits can be different than contribution limits in the event one chooses to make a contribution and not deduct it from their income in a given year. There are several reasons someone may choose to do this that go beyond the scope of this article. In the example above, suppose Bill chose to only deduct from his income, $5,000 out of the $10,000 he contributed in 2022. In 2023, his contribution limit would remain $23,000, but his deduction limit would be $28,000.

However, 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.

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.

Example contribution room calculation

Your contribution limit is the total of this year's deduction limit and any unused contribution room you have. Here's an example: Jim is employed full-time. In 2022, he made $50,000 pre-tax. His employer does not provide any pension plan. Here’s what his calculation would look like: 18% of $50,000 or $29,210, whichever is less. Let's do the math: $50,000 x 18% = $9,000. That is less than the maximum limit of $29,210 so his RRSP deduction limit is $9,000.

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

In 2023, he'll be able to carry forward that $4,000 and add it to his deduction room. If his deduction room 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).

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

How to calculate RRSP contribution limit

The RRSP deduction limit is always 18% of your previous year’s pre-tax earnings or the amount set by CRA, whichever is less. Your RRSP contribution limit is individual because of the rollover of unused contribution room. 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 to find your contribution room.

How to find your RRSP contribution limit

The CRA keeps track of your contribution limit for you. They will report it on your Notice of Assessment each year under the heading “Available Contribution Limit”. The Notice of Assessment is the summary you receive from CRA after you file your taxes each year.

You can also check your RRSP contribution limit online. Set up an account with 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 CRA at 1-800-267-6999 (in Canada and the USA).

Feeling adventurous? You can use Chart 3 in the RRSP Guide T4040, “RRSPs and Other Plans for Retirement”.

Where to 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-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?

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

The CRA keeps track of RRSP contributions. If you exceed your contribution limit for the year, you have 3 options:

1. Withdraw the overcontribution. 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 Homebuyers’ Plan or the Life Long 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.

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 years old.

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

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