How much can you contribute to your RRSP?
It’s the mother of all RRSP questions. Sounds so simple, doesn’t it? It might surprise you to learn there’s a simple way to find the answer.
- Look at the last Notice of Assessment or Notice of Reassessment you got from the government.
- Find your available contribution room. This is the maximum amount you can put in your RRSP (and a few other plans—more on these later) for the tax year ahead.
How is your available contribution room calculated?
Checking your Notice of Assessment for your available contribution room is pretty simple. What’s less simple is understanding how it’s calculated. Here it is, in its most basic form:
Your unused contribution amount
Your deduction limit
Your unused reported contribution amount
Your available contribution room for the year ahead
This means, of course, that it’s time to get acquainted with your unused contribution amount, your deduction limit, and your unused reported contribution amount.
What’s your unused contribution amount?
Your unused contribution amount is the total of any contributions you could have made in the past, but didn’t.
For example, if your available contribution room for a certain year is $10,000, but you only contribute $9,000, your unused contribution amount is $1,000. If the same thing happens the next year, your unused contribution amount is $2,000—the total of the first year and the next.
What’s your deduction limit?
Your deduction limit is the maximum amount of a certain year’s contributions you can use to lower your taxable income, and it usually changes from one year to the next.
- For 2023, your deduction limit is 18% of the income you reported on your 2022 taxes, up to $30,780.
- For 2024, your deduction limit will be 18% of the income you reported on your 2023 taxes, up to $31,560.
Remember, the RRSP contributions you make within the first 60 days of each calendar year count toward the previous year’s maximum.
What’s your unused reported contribution amount?
Your unused reported contribution amount is the total of any contributions you made and could have deducted from your taxable income in the past, but didn’t.
For example, if your available contribution room for a certain year is $10,000, and you contribute the full $10,000 but only use $7,000 to lower your income tax, your unused reported contribution amount is $3,000—the difference between what you reported and what you used for the deduction.
Most people use all the contributions they report, so this amount isn’t as common as the others.
What’s your contribution limit?
In case you’re wondering how your contribution limit plays into it, it’s actually just another way to say your available contribution room, as described above.
You’ll sometimes see contribution limit used in place of deduction limit. This is common, but misleading. Your deduction limit isn't the maximum amount you can contribute—it’s the maximum amount of a certain year’s contributions you can use to lower your taxable income.
Is your available contribution room affected by anything else?
Your available contribution room isn’t just about your RRSP. It’s affected by, and acts as a limit for, contributions to your RRSP and a few other plans. Namely:
- Specified pension plans (SPPs)
- Pooled registered pension plans (PRPPs)
- Spousal RRSPs or SPPs
- Registered pension plans (RPPs) or Deferred Profit-Sharing Plans (DPSPs), including contributions made by your employer
If your saving strategy includes contributions to these plans, check out RRSPs and Other Registered Plans for Retirement to learn more about how they affect your available contribution room.
What happens if you overcontribute to your RRSP?
If you overcontribute, it means you’ve put in more than your deduction limit, plus your unused contribution amount, plus $2,000. Everyone has a lifetime buffer of $2,000.
If you exceed your limit by $2,000 or less, you don’t have to do anything about it, but you can’t use the extra money to lower your taxable income.
If you exceed your limit by more than $2,000, you need to take the excess money out or you’ll be charged a monthly 1% penalty on it. The good news is, you won’t need to pay withholding tax on the money you take out as long as you do it within one year of going over your limit.
Most people find out they’ve overcontributed when they check their Notice of Assessment and see that their available contribution room is negative.
Always get help if you need it
Keep track of your contributions and any money going into your workplace plans. Remember your available contribution room—and the amounts that factor into it—so you’ll never be surprised. And as always, if you want or need a little guidance, talk to a financial advisor you trust.
And just like that, your head’s stopped spinning.
The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.