One of most common questions I hear every year about RRSP’s is how much can be contributed to an RRSP? The rules may seem complicated, but for most Canadians, it’s pretty straight forward.
If you filed an income tax return last year, you would have received a Notice of Assessment from the CRA and your RRSP contribution limit is reported on the Notice of Assessment. For example, the amount you can contribute to your RRSP in 2009 would be reported on your 2008 Notice of Assessment.
How Is The RRSP Contribution Limit Calculated?
The amount you can contribute to your RRSP is determined by your earned income last year and the maximum RRSP limit. Some adjustments are made if you were a member of a pension plan or other type of employee sponsored retirement plans.
The maximum amount you can contribute to your RRSP and subsequently deduct on your income tax return in any given year is limited by your RRSP deduction limit. The RRSP deduction limit may also be referred to as contribution room or deduction room.
The RRSP deduction limit is calculated by:
- Taking the lesser of 18% of your previous years earned income from the immediately preceding year or the RRSP Dollar Limit for the year,
- LESS: The your previous year’s pension adjustment (PA) reported on your T4 if you were a participant of your company’s deferred profit sharing program (DPSP) or registered pension plan (RPP),
- PLUS: Unused deduction room carried forward from prior years,*
- PLUS: Pension adjustment reversal from past years, and
- LESS: Net past service pension adjustment (Net PSPA).
* If you deducted less than the maximum, the unused RRSP contribution room is carried forward and can be used in later years.
The RRSP dollar limit is reported annually by the CRA. See the Rates & Tools page for the most recent RRSP Dollar Limit.
Are There Age Limits?
As long as you had earned income in the last tax year, you can contribute to an RRSP up to and including the year in which you turn age 71. Your contributions can be to your own RRSP or to your spouses’ RRSP. See What is a Spousal RRSP?
Question About RRSP’s?
Do you have a question about your RRSP or about RRSP contributions or deductions? Please feel free to ask your question in the comment box.
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{ 2 comments… read them below or add one }
My daughter is a stay home mom but still contributes to a RRSP. 2008 year she had no income other than Universal child credit but contributed 900.00 which we did not claim. She has another 900.00 for 2009. She cahsed in some of her RRSP money due to necessity. Can she claim her RRSP’s for 08 and 09 this tax return. Thanks
@Sheila: She can carry forward her contributions and use them in future years as deductions. If her income is low only for the period of time she will be raising children, then she should continue to contribute to her RRSP. However, if her income will be low for a longer period of time, the TFSA would be a better choice because the RRSP contribution is not useful (she can’t really use the deductions).