Blog

RRSP Contribution and Deduction Limit Rules

February 7, 2023 | Posted by: MortgageAlchemist.ca Ben Moazzez

Making an RRSP contribution is a great way to plan for your future. By contributing to an RRSP, you can reduce your taxable income, pay less tax now, and potentially build a larger retirement fund.

To help you get started, we break down the rules on making RRSP contributions, so that you can make the most mileage out of your plan and avoid tax penalties.

Benefits of Contributing to an RRSP

With an RRSP, your contributions are tax-deductible, meaning that you can deduct the amount you contribute from taxable income when filing your taxes. This means potentially paying less tax and saving more money.	RRSPs are versatile savings vehicles – while RRSPs are primarily used to save for retirement. You can also use your RRSP to help with the down payment on your first home through the Home Buyers' Plan or to fund your education through the Lifelong Learning Plan1.
Any growth of your investments inside an RRSP is not taxed until withdrawn, potentially allowing your savings to grow faster.	Interested in growing a retirement nest with your spouse or common-law partner? With a Spousal RRSP, couples can more evenly split their retirement income.

• When can I start contributing to an RRSP?

  When it comes to RRSP eligibility, here are a few basics worth knowing.
• There is no minimum age for opening an RRSP. In fact, those under 18 may be able to set one up with their parent or guardian.
• However, some financial institutions may require customers to be the age of majority.
• You can set up and contribute to an RRSP as long as you have employment income, contribution room, and file a tax return.

Understanding your RRSP Contribution Limit

Your RRSP contribution limit, also known as your 'deduction limit', is the maximum amount you can contribute to your personal or a spousal RRSP in a given year.

It can be found on the bottom of your Notice of Assessment or Reassessment.

How is my RRSP contribution limit calculated?

The Canada Revenue Agency generally calculates your RRSP deduction limit as follows: the lesser of 1) 18% of the earned income you reported on your tax return in the previous year and 2) the annual RRSP limit plus: Please note:
• Pension adjustments, past service pension adjustments, pension adjustment reversals, and unused RRSP, PRPP or SPP contributions at the end of the previous year can also affect your RRSP contribution limit.

Back to Main Blog Page