A Registered Retirement Savings Plan (RRSP) is a great way of saving for your retirement. Every cent you contribute is considered an RRSP tax deduction. For example, if you make an RRSP contribution of $5,000 over the tax year, your taxable income will be reduced by $5,000. This means that you’ll pay less tax up front, and typically receive a significant tax refund (which you can then invest in your RRSP and grow your retirement fund even faster).
However, there are rules surrounding how much to contribute to an RRSP. The government limits RRSP contributions every year and also allows for taxpayers to carry forward any unused amounts to subsequent years.
So, when you’re wondering, what is my RRSP contribution room, you need to know that there is a max RRSP contribution limit and an RRSP deduction limit. The two sound similar but it’s important to understand the difference. If you contribute more than the RRSP contribution limit, you could face big penalties and have to submit time-consuming paperwork.
What is RRSP Contribution limit for 2024?
The RRSP contribution limit for 2024 is the lesser of 18% of your income from the previous year up to a maximum dollar contribution of $31,560, and the maximum dollar contribution for 2025 will be $32,490.
What is the RRSP deduction limit?
The RRSP deduction limit is the lesser of 18% of your gross income or that year’s maximum RRSP deduction limit, which for 2024 is $31,560. It’s really important to understand that any contributions you make to company RRSPs will also go towards your RRSP deduction limit, and any pension adjustments you may have could also have an impact.
Many Canadians can’t afford to max out their RRSP deduction limit, so they are allowed to carry any unused amount over to the following year. This is where the RRSP contribution limit comes into play.
How is RRSP Contribution Room Calculated?
Canada Revenue keeps constant track of your RRSP contributions and is aware of the maximum RRSP contribution you can make in any given year. Here’s how it’s worked out:
Your RRSP deduction limit for that year (typically 18% of your salary)
PLUS
The unused RRSP contributions from all qualifying previous years
EQUALS
Your maximum RRSP contribution limit
You can only carry forward any unused RRSP contributions from years in which you earned enough money to pay tax. So, if you haven’t made many RRSP contributions during your working years, the difference between your RRSP deduction limit and your RRSP contribution limit could be quite significant.
RRSP Contribution Deduction Examples
Firstly, here are two examples of how to calculate your RRSP deduction limit:
Ahmed earns $70,000 per year. What is his RRSP deduction limit?
- $70,000 x 18% = $12,600 (well below the maximum RRSP deduction limit of $31,560)
- He makes a $5,000 RRSP contribution
- He is able to carry over $7,600 to next year
- If his maximum RRSP deduction limit remains the same, his RRSP contribution limit for the following year will be $12,600 + $7,600 = $20,200
Françoise earns $180,000 per year. What is her RRSP deduction limit?
- $180,000 x 18% = $32,400
- This is above the maximum RRSP deduction limit ($31,560), so the most she can contribute is $31,560
- She makes a $25,000 RRSP contribution.
- She is able to carry over $6,560 to next year
- If her maximum RRSP deduction limit remains the same, her RRSP contribution limit for the following year will be $31,560 + $6,560 = $38,120
These are fairly simple examples, designed to explain how you can calculate your RRSP contribution limit, and they assume no carry-over from previous years. There are a number of ways to find out your precise RRSP contribution limit.
After submitting your tax returns, you should receive a notice of assessment from the CRA, which includes details of your RRSP contribution limit for the following year. Alternatively, you could sign up for a CRA My Account, which will contain all details of your RRSP contribution limit, call the Tax Information Phone Service, or speak with your accountant.
What is the age limit for RRSP contributions?
You have to stop making RRSP contributions at the end of the year in which you turn 71. If you have a younger spouse, however, you can contribute to their RRSP until the end of the year they turn 71. There is no age minimum as such, you just have to have a SIN number, employment income and pay taxes.
What happens if you exceed your RRSP contribution limit?
The CRA allows a buffer for any RRSP over Contribution under $2,000. What this means is that you won’t be charged a penalty for any over contribution to an RRSP under $2,000, though you won’t receive a tax break on that over contribution. Be aware, though, that this $2,000 is a lifetime amount; you can’t over contribute to your RRSP by $2,000 every year without a penalty. Any RRSP contribution exceeding $2,000 will be subject to a tax of 1% every month that your RRSP contains this amount. Even if you report the over-contribution within 90 days, you will still be subject to the 1% tax unless you write to the CRA asking them to cancel or waive the tax.
Enjoy your retirement even with low RRSP income
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