How to Deal with Unused RRSP Contributions

The Registered Retirement Savings Plan (RRSP) is a powerful savings tool for Canadian citizens. It allows you to save a portion of your income in a tax-deferred account. You’ll have a pleasant and secure retirement if you manage to maximize your contributions.

That said, there are limits to how much you can contribute to your RRSP each year. For 2024, that limit is 18% of your pre-tax income up to $31,560. That number changes, so check with the Canada Revenue Agency each year. If you’re a member of a pension plan or deferred profit sharing plan, your contribution room may be lower.

Fortunately, if you can't or don't contribute to your RRSP one year, you don’t lose the tax savings on that money. Your contribution room carries over year.

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How to Find Out if You Have Unused RRSP Contributions

Determining if you have unused RRSP contributions is quite easy. The first place to look is the RRSP Deduction Limit Statement on your most recent Notice of Assessment from the Canada Revenue Agency (CRA). This is the notice you receive after filing your tax return. The notice should tell you what you contributed last year and how much room you have left.

You could also check for unused RRSP contributions by logging into your Canada Revenue Agency account. You'll need to register for an account if this is your first visit. You can log in using a CRA username and password or by using your bank as a sign-in partner. (Using your bank is generally considered the simplest way.)

Once you’re in your account, click on the tab called “RRSP and TFSA.” Then click the “RRSP” link in the box below the tabs. Your RRSP data will appear. Look for the this line: “Unused RRSP contributions available to deduct for is $XXX.XX.”

What to do with Unused RRSP Contributions

If you didn’t contribute to your RRSP last year, you may still have time. You have 60 days after the end of the year to make your RRSP contributions.

If you’re outside the window already, your contribution room rolls over indefinitely. This is useful if you didn’t have the cash to contribute in previous years or simply forgot to make the contribution. The unused contributions will continue to add up on your RRSP Deduction Limit Statement on your Notice of Assessment and in your CRA account.

Here’s an example of how this works:

In 2017, your contribution room was $12,000, but you only contributed $5,000. Therefore, your unused contributions came to $7,000. In 2018, your contribution room was $13,000, so you can contribute a total of $20,000 (this years $13,000 + last year’s unused $7,000.)

(Make sure you don’t over contribute to your RRSP. Contributions that exceed your limit are subject to a 1% tax per month.)

Unused RRSP contributions have some interesting tax ramifications. You typically deduct your contribution amount on your tax return to lower your tax liability and pay less in taxes that year.

But you aren't required to deduct your RRSP contribution on your tax return in the same year you make it. You can choose to take that deduction in a future year. For instance, it may be smarter for you to take the deduction in a year where your income is greater so you fall out of a higher tax bracket.

Since RRSP contributions are tax-deductible, in some cases it may be wise for you to only contribute as much as you need to eliminate your tax liability that year.

For example, let’s say you earn $60,000/year and have $75,000 in unused contributions (you haven't contributed in a while). A loved one passes away and you suddenly inherit $100,000.

In this case, if you contribute $75,000 (your maximum) to your RRSP, you’ll reduce your taxable income to $0, effectively paying no taxes. But you only need to contribute $60,000 to your RRSP to produce the same effect. It makes sense to only contribute $60,000 this year and use the remaining $40,000 as a contribution for next year to reduce that year’s taxable income.

Don’t Wait to Contribute to Your RRSP

While it's possible to use unused RRSP contributions in clever ways, in most cases its best to contribute your maximum amount every year. This puts you in the habit of regularly saving money and gives your fund more time to grow through investment.

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