What Is an RRSP Deduction Limit?

Your Registered Retirement Savings Plan (RRSP) isn’t only an important retirement savings vehicle, it’s also a powerful tax saving tool.

Here’s what you need to know about the RRSP deduction limit to minimize taxes, maximize retirement savings, and stay in the Canada Revenue Agency (CRA)’s good graces.

What is an RRSP deduction limit?

An RRSP deduction limit is the maximum amount of money you can contribute to your RRSP and claim as a tax deduction on your income tax return.

More specifically, it’s the lesser of 18% of your income from the previous year or the annual limit set by the CRA (up to a maximum of $32,490 for tax year 2025).

Is an RRSP deduction limit the same as a contribution limit?

Even though your RRSP deduction limit and contribution limit are related, they aren’t the same.

An RRSP contribution limit sets a cap on the amount of money you can contribute to your RRSP in a given year. Your RRSP deduction limit determines the maximum amount of money you’re allowed to claim as a tax deduction on your income tax return for contributions made to your RRSP.

You can have the same deduction limit and contribution limit, but if you make a contribution in a prior year that you did not deduct on your income tax return, these amounts can be different.

How does the RRSP deduction limit work?

Example: Manal’s situation (2025)

Manal has an RRSP deduction limit of $14,400 and earns $80,000 per year, which places him in the federal tax bracket of 14.5%–20.5% (based on the new 2025 rates).

Next year, Manal’s salary is expected to increase to $115,000, pushing him into a higher 26% federal tax bracket.
Given this situation, Manal has two options:

Option 1 – Deduct the $14,400 this year (2025)

Manal contributes $14,400 to his RRSP and fully deducts the contribution this year.

He saves $2,952 in federal tax.
Here’s the updated math:

Tax with the RRSP deduction

$80,000 – $14,400 = $65,600

He pays:

• 14.5% on the first $57,375 of taxable income

• 20.5% on the portion over $57,375 up to $114,750

Step 1:
$57,375 – basic personal amount ($15,705) = $41,670
$41,670 × 0.145 = $6,037.15

Step 2:
$65,600 – $57,375 = $8,225
$8,225 × 0.205 = $1,686.13

Total tax with deduction:
$6,037.15 + $1,686.13 = $7,723.28

Tax without the RRSP deduction

If Manal didn’t make the $14,400 contribution:

Step 1:
$57,375 – $15,705 = $41,670
$41,670 × 0.145 = $6,037.15

Step 2:
$80,000 – $57,375 = $22,625
$22,625 × 0.205 = $4,641.13

Total tax without deduction:
$6,037.15 + $4,641.13 = $10,678.28

Tax savings:
$10,678.28 – $7,723.28 = $2,955.00

Option 2 – Wait and deduct next year (2026)

If Manal delays the $14,400 deduction to 2026, when his income rises to $115,000, his marginal tax rate increases to 26%, leading to greater tax savings.

Tax on $115,000 (no RRSP deduction)

• 14.5% on the first $57,375 = $8,318.38

• 20.5% on the next $57,375 ($114,750 – $57,375) = $11,754.38

• 26% on the remaining $250 ($115,000 – $114,750) = $65.00

Total tax:
$8,318.38 + $11,754.38 + $65.00 = $20,137.76

Tax with the RRSP deduction applied

$115,000 – $14,400 = $100,600

Tax breakdown:

• 14.5% on the first $57,375 = $8,318.38

• 20.5% on the remaining $43,225 ($100,600 – $57,375) = $8,861.13

Total tax with deduction:
$8,318.38 + $8,861.13 = $17,179.51

Tax savings:
$20,137.76 – $17,179.51 = $2,958.25

💡 Depending on provincial rates (e.g., Ontario), actual total savings would exceed $3,100 when the full combined federal + provincial marginal rates are applied.

✅ Summary

By waiting until his income is higher, Manal’s $14,400 RRSP contribution can bring him down to a lower bracket and save more overall on taxes.

How is my RRSP deduction limit calculated?

To calculate your RRSP deduction limit, take the lesser of 18% of your previous year’s earned income or the maximum limit set by the CRA.

For example, if you made $180,000 in earned income last year.

• Last year’s earned income of $180,000 x 0.18 = $32,400
• The RRSP contribution limit for 2025 = $32,400

It’s important to remember that other things can affect your RRSP deduction limit, such as pension adjustments and unused contribution room from previous years.

What percentage of my RRSP contribution is tax deductible?

100% of your RRSP is tax deductible. Contributions made to your RRSP reduce your taxable income dollar for dollar.

That means if you contribute $1,000 to your RRSP and claim the tax deduction for that contribution, your taxable income will be reduced by $1,000.

How do RRSP contributions affect my deduction limit?

RRSP contributions deducted from your income will reduce your deduction limit. RRSP contributions you make in a given contribution period, which is from March 1 to December 31 of the tax year you are filing, plus the first 60 days of the following calendar year, don’t have to be deducted from that year’s income, but they do have to be reported. If they are not deducted in the year the contributions are made, the amount carries forward as an “unused RRSP contribution”, and has no effect on your deduction limit until it is deducted from your income.

What if I exceed my RRSP deduction limit?

You can’t deduct more than your RRSP deduction limit in a year. If you contribute more than your contribution limit you may face penalties of 1% per month.

Here’s the good news. Canadians who are 19 years and older can have $2,000 extra in their RRSP if they accidentally contribute more than the allowable amount. So, if you accidentally over-contributed a few hundred bucks, it’s not going to cost you anything.

Just know that you won’t receive a tax deduction for the excess contribution.