What is RRSP?
An RRSP, or a Registered Retirement Savings Plan, is a savings plan that you can contribute to over the course of your working life. When you retire, you can convert your account to a Registered Retirement Income Fund (RRIF) and withdraw an income. In the meantime, you can treat your RRSP like a regular savings account by simply depositing the money and leaving it untouched until retirement. As a result, you’re rewarded with tax benefits, which you can take advantage of as soon as you open your RRSP account.
Contributing to an RRSP is an excellent strategy for future financial planning. When you contribute to an RRSP every year, you have the opportunity to claim a tax deduction, effectively lowering your total income tax burden. Additionally, any income earned within the RRSP is tax-deferred until withdrawal, potentially enabling you to grow your retirement savings more effectively. In this blog, we’ve outlined the rules regarding RRSP contributions and limits, empowering you to maximize the benefits of your plan.
Factors That Can Affect Your Contribution Limit
1. Unused contribution room
If you haven’t contributed the maximum to your RRSP in previous years, this unused contribution room will be added to your maximum contribution amount. You can find your unused contribution room on your most recent notice of assessment from the Canada Revenue Agency.
2. Pension plan contributions
If you contributed to a pension plan or deferred profit sharing plan (DPSP) through your employer during the previous year, your RRSP contribution room is reduced. The Canada Revenue Agency calculates this reduction for you. You can find it on your notice of assessment.
3. Excess contributions
If you go over your contribution limit by $2,000 or less, the CRA allows you to keep the money in your RRSP without penalty. If you over-contribute by more than $2,000, you will have to pay a tax of 1% for each month that the excess amount remains in your RRSP.
What is 2024 RRSP Contribution Limit?
Your RRSP deduction limit, also known as your “RRSP contribution limit” is the maximum amount you can contribute to your personal or a spousal RRSP in a given year. Based on your earned income from the previous year and any unused contribution room from previous years.
The Canada Revenue Agency generally calculates your annual RRSP contribution limit as follows:
- The total amount you can contribute to your RRSP each year is made up of your contribution limit for the current year plus any “carry-forward” contribution room from previous years.
- Your RRSP contribution limit for 2024 is 18% of earned income you reported on your tax return in the previous year, up to a maximum of $31,560. For 2023, the dollar limit was $30,780. For 2024, the dollar limit will be $32,490. If you have a company pension plan, your RRSP contribution limit is reduced – see the last bullet point below for details.
- If you don’t make the maximum allowable RRSP contribution in any given year, Canada Revenue Agency (CRA) lets you carry forward the unused contribution room indefinitely and add this to the amount you can contribute for future years.
- Both your annual contribution limit and any carry-forward contribution room are shown on your notice of assessment.
If you’re looking at your RRSP as you’re prepping for tax season, there’s more to know. For more information on the deadline to file your 2023 taxes, read our blog which outlines all the important tax deadlines to keep in mind.