Imagine this scenario: you are turning 71 this year and want to maximize your RRSP contributions before you must convert your RRSP into a RRIF by the end of the year.

In a nutshell: you could over-contribute to your RRSP in December as long as that extra contribution will be justified in January when you are awarded new contribution room based on your prior year’s earnings. You would face one month’s over-contribution penalty from CRA (currently 1% per month). You see, your new RRSP contribution room is calculated as a percentage of your prior year’s income. In the year you turn 71, you may well have eligible income that would lead to an increase in contribution room the following year – but by then you will no longer have an RRSP to contribute into, as it has turned into a RRIF. You can use up that extra contribution room by depositing to your RRSP before it converts to a RRIF as long as you are willing to pay a penalty of 1% per month of the over-contributed amount until the following January.

One way this could really matter: if the extra RRSP contribution is sizeable it could significantly bolster your tax-sheltered account as you head into retirement. The associated tax deduction may be particularly valuable if you plan on continuing to work even after converting to a RRIF.

This strategy is not always useful for everyone. We recommend consulting your investment advisor for guidance.

See also: RRSP strategies at age 71