There are two re-occurring questions I frequently get asked regarding RRSP contributions. How can I calculate my maximum RRSP contribution limit and when should I contribute within the year?
Calculating your contribution limit is possible, however it is not recommended. There are many factors to take into consideration, such as pension adjustments, prior contributions, and pension adjustment reversals.
Therefore, it’s important to review your Notice of Assessment as it will provide your maximum allowable deduction amount for a given year. The document is provided by your accountant once you complete your income taxes and a copy can be found online through your MyCRA profile.
Over-contributing to your RRSP can be a costly and time-consuming mistake, the penalty on over-contributions is 1 % per month and withdrawing the overpayment is a lengthy and tedious process. However, if you over-contributed by 2,000 $ or less; the CRA has a 2 000 $ lifetime over-contribution limit without penalty. It is important to note that this amount is not tax deductible.
RSP contributions can be made any time within the year, however you have 60 days after the end of the year to make your contribution for the previous year. For example, you may contribute from January 1st, 2023, to February 29th, 2024, for the 2023 tax year.
Due to the tax sheltering advantages of an RSP, it is recommended to make your contributions as soon as possible. Any investment income, such as interest or dividends, earned within the RSP are tax free if the money remains within the account.
In summary, it is best to consult your Notice of Assessment to prevent over-contributing and to contribute towards your RSP sooner rather than later to take advantage of tax sheltering.
Should you have any questions, do not hesitate to contact us.