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RRSP Contribution and Deduction Limit Rules
Making an RRSP contribution is a great way to plan for your future. By contributing to an RRSP, you can reduce your taxable income, pay less tax now, and potentially build a larger retirement fund.
To help you get started, we break down the rules on making RRSP contributions, so that you can make the most mileage out of your plan and avoid tax penalties.
RRSPs could help you meet your financial goals
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Benefits of Contributing to an RRSP
Saving in an RRSP has a number of enticing benefits.
- With an RRSP, your contributions are tax-deductible, meaning that you can deduct the amount you contribute from taxable income when filing your taxes. This means potentially paying less tax and saving more money.
- Any growth of your investments inside an RRSP is not taxed until withdrawn, potentially allowing your savings to grow faster.
- RRSPs are versatile savings vehicles – while RRSPs are primarily used to save for retirement. You can also use your RRSP to help with the down payment on your first home through the Home Buyers' Plan or to fund your education through the Lifelong Learning Plan1.
- Interested in growing a retirement nest with your spouse or common-law partner? With a Spousal RRSP, couples can more evenly split their retirement income.
When can I start contributing to an RRSP?
When it comes to RRSP eligibility, here are a few basics worth knowing.
- There is no minimum age for opening an RRSP. In fact, those under 18 may be able to set one up with their parent or guardian.
- However, some financial institutions may require customers to be the age of majority.
- You can set up and contribute to an RRSP as long as you have employment income, contribution room, and file a tax return.
Understanding your RRSP Contribution Limit
Your RRSP contribution limit, also known as your "deduction limit", is the maximum amount you can contribute to your personal or a spousal RRSP in a given year.
It can be found on the bottom of your Notice of Assessment or Reassessment.
How is my RRSP contribution limit calculated?
The Canada Revenue Agency generally calculates your RRSP deduction limit as follows: the lesser of 1) 18% of the earned income you reported on your tax return in the previous year and 2) the annual RRSP limit plus: Please note:
- Pension adjustments, past service pension adjustments, pension adjustment reversals, and unused RRSP, PRPP or SPP contributions at the end of the previous year can also affect your RRSP contribution limit.
How much can I contribute to an RRSP this year?
The RRSP contribution limit for 2023 is $30,780. The Canada Revenue Agency generally calculates your RRSP deduction limit as follows: the lesser of 1) 18% of the earned income you reported on your tax return in the previous year and 2) the annual RRSP limit: as listed on the previous year’s tax return, up to a maximum of $30,78- plus any contribution room carried forward from previous years less any pension adjustments.
RRSP contribution limits for previous years were:
- 2022: $29,210
- 2021: $27,830
- 2020: $27,230
- 2019: $26,500
- 2018: $26,230
- 2017: $26,010
- 2016: $25,370
- 2015: $24,930
What happens if I overcontribute to my RRSP?
If you go over your RRSP contribution limit by $2,000 or less, you won't be penalized; however, you can't deduct these excess contributions from your taxable income. Excess contributions over $2,000, on the other hand, are penalized and you must pay a 1 percent tax per month.
Your over-contributions must be reported to the Canada Revenue Agency (CRA) within 90 days after the last day of the tax year when you over-contributed. Reports filed after that deadline may be subjected to an additional penalty equal to 5 percent of the taxes you owe plus an extra 1 percent for every month, to a maximum of 12 months.
Can the Canada Revenue Agency (CRA) cancel or waive the tax on your excess contributions?
The CRA states that this tax can potentially be waived or cancelled if you submit the following:
- A request to cancel or waive the tax.
- Copies of your RRSP, PRPP, specified pension plan (SPP) or RRIF statements that show the date you withdrew your excess contributions.
Any other correspondence that shows that your excess contributions are due to a reasonable error.
Frequently Asked Questions
What happens if I don't report excess contributions on my return?
If you submit your T1-OVP, 2019 Individual Tax Return for RRSP, PRPP and SPP Excess Contributions after the deadline, you could be subject to a penalty of 5% of your balance owing, plus another 1% of your owed balance is added for each month you are late. The monthly 1% penalty has a maximum of 12 months total.
When is the RRSP contribution deadline for 2020?
The RRSP contribution deadline for the 2022 tax year is March 1, 2023. Learn more.
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1 Subject to eligibility and conditions.
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