Saving and investing in a Registered Retirement Savings Plan (RRSP) can be a smart move for Canadians who want to make sure they have enough money set aside for retirement.
Unlike Tax-Free Savings Accounts (TFSAs), which have set contribution limits, RRSP contribution rules are slightly more complicated. So we’ve put together a handy guide with everything you need to know about the RRSP contribution room. (Before you dive in, though, be sure you understand how RRSPs work.)
- Each year, working Canadians earn new RRSP contribution room (18% of their earned income, up to annual limits), which is added to any remaining contribution room from previous years. There are penalties if you contribute more than your allowable limit.
- Contributions to your RRSP can be deducted from your taxable income so you save money on your taxes. Deferred deductions are called “unused RRSP contributions” and are reported and/or claimed on Schedule 7 of your income tax return.
- All your RRSP information—including contributions made, earned, carried forward, deducted, and your total contribution room for the coming year—can be found on the Notice of Assessment you receive from the CRA, or online in your CRA My Account.
What is the RRSP contribution limit?
RRSP contribution room (also referred to as contribution limit) is the maximum amount of money you can put into your RRSP accounts in any given year. You can claim allowable RRSP contributions as a deduction on your annual tax return to lower the amount of taxes you have to pay.
How does the contribution room work for my RRSP?
Each year that you work and report your income to the Canada Revenue Agency (CRA), you automatically build new RRSP contribution room.
The amount of new contribution room you get each year is equal to 18% of your earned income (meaning money that you work for, not investment income or government benefits you receive), up to a cap (called the allowable limit) that changes annually.
Heads up: there are penalties if you exceed your allowable RRSP contribution limit.
How do I know my RRSP contribution limit?
There are two ways you can check your RRSP contribution limit:
- Check your Notice of Assessment. After you file your taxes, the Notice of Assessment you receive from the CRA will indicate how much contribution room you earned in that tax year, how much room you have remaining from previous years, as well as your total contribution limit for the coming tax year.
- Go online. If you can’t find your assessment from last year, all this information should also be in your CRA My Account in the RRSP and TFSA section.
How do I calculate the RRSP contribution room?
The CRA calculates and keeps track of everyone’s contribution room so you don’t have to.
But if you’re keen on doing your own math to see how much you can contribute to your RRSP this year, or if you simply want to double-check that your Notice of Assessment is correct, here’s a step-by-step guide, along with a couple of examples.
- Multiply the amount of your annual earned income by 0.18. If the result exceeds the annual RRSP limit ($29,210 for 2022), just use the RRSP limit amount itself.
- If you have a workplace pension, subtract your annual pension adjustment (you can find this information on the T4 slip from your employer).
- Finally, add any RRSP contribution room carried forward from previous years.
Let’s take a look at an example:
Let’s say Grace earned an income of $175,000 in 2021 and has no pension. She also has $5,000 in RRSP contribution room carried forward.
- $175,000 earnings x 0.18 = $31,500 (over the annual RRSP limit of $29,210)
- $29,210 – $0 pension adjustment = $29,210
- $29,210 + $5,000 contribution room carried forward = $34,210
Grace’s total RRSP contribution room for 2022 is $34,210.
What is an unused RRSP contribution?
Unused RRSP contributions are any allowable RRSP contributions you made and reported in previous years, but have not yet claimed as a tax deduction.
Here’s an example with Ismath’s situation.
- Ismath made full use of their $12,000 in RRSP contribution room in 2022. When they file their taxes, they report this contribution amount on their return but don’t claim a deduction for it.
- This unclaimed amount of $12,000 is Ismath’s unused RRSP contribution.
- If you’re wondering why Ismath chose to postpone their deduction. Well, they happened to get a big raise recently, which increases their income for 2023 to $120,000.
- They know this new salary will push them into a higher federal tax bracket, so they decide to wait until they file next year’s return to claim the deduction.
- That way, this increases their tax savings (26% on $12,000, or $3,120 in tax savings—rather than $2,460 in savings based on their 2022 tax bracket of 20.5%).
Take note that “carried forward RRSP contribution room” isn’t the same as “unused contributions,” even if some people might use the terms interchangeably.
How to use unused RRSP contribution?
You can add allowable unused RRSP contributions to your income tax return on Part A of Schedule 7. Then indicate how much of your total RRSP contributions you want to deduct on Part C of the same schedule.
If you’re using TurboTax, the software will do this for you.
How much RRSP can I carry forward?
Any RRSP contribution room you have left is automatically carried forward, which means you don’t have to max out your RRSP contributions each year.
In other words, these amounts continue to roll over into future years—you don’t lose contribution room just because you don’t max out your RRSP contributions in any given year.
So, for instance, if Grace from our first example above made $20,000 in RRSP contributions in the 2022 tax year, she’d carry forward $14,210 in remaining contribution room into 2023. This would be added to any new contribution room she accumulates (based on her 2022 earned income).
Note, however, that Canadians can’t make new RRSP contributions after the year they turn 71.
What happens if I exceed my RRSP contribution room?
If you put more money into your RRSP than your contribution room allows, you can’t deduct the excess contributions from your taxable income.
Also, if you over-contribute to your RRSP by more than $2,000, you need to take out the excess amount immediately or the CRA will charge you a 1% monthly penalty on those extra funds until you withdraw them.
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Frequently Asked Questions
The RRSP contribution limit for 2023 is $30,780, up from $29,210 in 2022.
You can continue to make contributions to your RRSP, up to your maximum contribution limit, until the year that you turn 71.
When you make and report RRSP contributions but don’t claim a tax deduction for those amounts, you end up with unused RRSP contributions. These unused contributions can be deducted from a future year’s taxable income.
If you don’t have a workplace pension, you can usually contribute 18% of your earned income to an RRSP, up to prescribed limits. However, any pension you have from an employer will affect how much you can contribute to your RRSPs.
Your Notice of Assessment will indicate if you have any unused RRSP contributions and, if so, what amount. As mentioned above, complete Schedule 7 of your tax return to claim unused RRSP contributions previously reported. But if you’re looking to take the easy street, TurboTax can handle the required RRSP schedules for you.
Unused RRSP contributions don’t expire. If you have unused RRSP contributions that you reported previously but have not yet claimed a deduction for, you can continue to carry them forward indefinitely.
You can even deduct unused RRSP contributions (up to the amount of your deduction limit) after the year you turn 71, when new RRSP contributions can no longer be made.
Keep in mind, however, that you’ll maximize your tax savings if you claim the deduction in a year when your taxable income (and tax bracket) is higher rather than lower, as shown above with Ismath’s unused RRSP contribution.