One of most common questions 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.
The first thing you need is an RRSP account. You can open an RRSP or transfer your RRSP to Questrade. If you use the offer code taxresource, you can have a $50 commission rebate.
If you filed an income tax return last year, you would have received a Notice of Assessment from the CRA. Your RRSP contribution limit is reported on the Notice of Assessment. For example, the amount you can contribute to your RRSP in 2011 would be reported on your 2010 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?