Hannah Logan
Siddhi Bagwe
Opening a registered retirement savings plan (RRSP) is a great way to save for your retirement. However, you’ll need to be aware of plenty of rules to ensure you make the most of the RRSP benefits and don’t incur penalty fees.
How do I make an RRSP contribution?
You can make RRSP contributions by opening an RRSP with a financial institution like a bank or credit union. If you use online banking, you can easily transfer funds from your chequing or savings account to the RRSP. Depending on your bank, you might also be able to get help from a financial advisor.
You can choose to contribute to your RRSP in a lump sum once a year, or you can set up automatic deposits throughout the year, such as after you receive each paycheque.
What is the RRSP contribution limit?
You can contribute only a certain amount to your RRSP every year: 18% of your total income earned in the previous year, up to a maximum limit set by the government (this number changes annually — it’s $30,780 for 2023), plus any unused contribution amounts from previous years. This combined amount is sometimes called “contribution room.”
If you have a spousal RRSP in your partner’s name, remember that contributions count toward the contributor’s overall limit — not the spouse’s limit. Opening a spousal RRSP does not give you additional contribution room.
The RRSP contribution limit is also known as the RRSP deduction limit because it’s the maximum amount you can claim as a deduction on your tax return.
How to calculate the RRSP contribution limit
You don’t have to do a bunch of math to figure out your contribution limit. The Canada Revenue Agency (CRA) calculates your contribution limit for you. You can find it on your latest notice of assessment from the CRA. If there are any changes since the last assessment, CRA will send you an updated RRSP limit on Form T1028.
You can also log into CRA’s My Account service online or via the app and you will see your RRSP deduction limit on your account overview. This limit includes any unused contribution room from previous years. If you prefer, you can call the CRA at 1-800-959-8281 to ask for your RRSP deduction limit.
» See our picks: The best high-interest RRSPs in Canada
What happens if I over contribute to my RRSP?
If you contribute more than your limit to your RRSP (or your spousal RRSP), it’s called an excess contribution. If you exceed your contribution limit by more than $2,000, you have to pay a tax of 1% of the excess contribution per month.
However, if you withdraw the excess amount before the end of the month in which you made it, the tax will be waived. It will also be waived if you contributed to a qualifying group plan.
Are RRSP contributions tax-deductible?
Yes. The amount that you contribute to your RRSP can be claimed as a deduction from your taxable income, which essentially means you’ll be taxed on a lower income.
Now, what many Canadian taxpayers don’t realize is that you don’t have to deduct all those contributions in the same year. You can choose to carry forward some or all your RRSP contribution deductions into future years.
Generally speaking, the more money you make — and the higher your tax bracket — the more helpful these tax deductions are. So, if you don’t currently pay a high rate of tax, it might be in your best interest to save some or all of your contribution deductions for a future year when you are making more money and paying a higher overall tax rate.
If you use this strategy, you’ll still need to claim the entire contribution amount on your annual tax return. However, the CRA will take note of the unused contributions and will list the non-deducted amount on your notice of assessment as available to carry forward to a future year. You can also keep track of the amounts yourself using Schedule 7.
What if I can’t afford to max out my RRSP contribution?
That’s okay. Your RRSP contribution limit is the maximum amount you can contribute in a particular year, and there is no minimum contribution required.
You don’t have to contribute up to the limit every year, and you don’t have to worry about losing your contribution room if you can’t use it up in any given year. That amount will be carried forward to the next year.
For example, let’s say you have $30,780 in contribution room (the 2023 RRSP contribution limit). If you contribute $10,000 this year, the remaining $20,780 will be added to your annual contribution limit for next year, and your contribution room will continue to grow until you make up those contributions (or until December 31 of the year when you turn 71, whichever comes first).
What is the RRSP contribution age limit?
Once you turn 71, you have until the end of that calendar year to choose one of these three options:
- Withdraw the RRSP money and pay income taxes on the full amount.
- Convert your RRSP into a registered retirement income fund (RRIF).
- Use the RRSP funds to purchase an annuity.
Frequently asked questions for RRSP contribution
The RRSP contribution deadline for the 2023 tax year is February 29, 2024. It’s typically around March 1st, though it may shift later if that date falls on a weekend. Any RRSP contributions made after the deadline cannot be deducted from your income until the following tax year.
There is no minimum age to contribute to an RRSP. Any Canadian resident with a Social Insurance Number (SIN) who has employment income and files taxes in Canada is eligible to open an RRSP and make contributions up to their prescribed limit. You do not need to wait until you turn 18 like you do for Tax-Free Savings Accounts (TFSA).
About the Author
DIVE EVEN DEEPER
TFSA vs. RRSP: How to Choose
The tax-free withdrawals of a TFSA offer more flexibility, but the tax-deferred contributions of an RRSP are great for retirement. The type of account you choose will depend on your savings goals.
Best RRSP Accounts and Rates in Canada for 2024
Use these high-interest RRSPs to make contributions in the short term before deciding how to invest your retirement funds in the long term.
How to Prepare for the 2023 RRSP Contribution Deadline
February 29, 2024, is the RRSP contribution deadline for the 2023 tax year. Knowing your income, tax bracket and contribution room can help you decide whether to take action by that date.
Nora Dunn
RRSP Loan: Benefits and Drawbacks
An RRSP loan lets you borrow money to contribute to your RRSP. This strategy can help you lower your taxable income and potentially get a tax refund, but it isn’t right for everyone.
Barry Choi