RRSP season is now in full swing. If you have yet to make your 2012 contribution, not to worry you still have time. The deadline is set for March 1, 2013. Here are some key things you should know about your RRSPs.

How much can I contribute to my RRSP?

  • The maximum amount you can contribute for the 2012 tax year is:
  • 18% of your ‘earned income’ or $22,970 (whichever is less)
  • Plus unused contribution room from years past
  • Minus any company sponsored pension plan contributions.

If you want to find out what your RRSP Contribution Limit is for 2012 just check on your ‘Notice of Assessment’ sent to you annually from Revenue Canada after they have processed your previous year’s tax return. It will indicate the exact amount you may contribute to your RRSP for the current year. You can also find out how much you can contribute by calling Canada Revenue Agency’s Tax Information Phone Systems (TIPS) line at 1-800-267-6999 or just go on their website.

What is earned income for RRSP purposes?

Your RRSP contribution room is based on your “earned income” which includes your salary or wages, CPP or provincial disability payments, taxable support payments, rental income and royalties LESS losses from your rental properties, non incorporated business and alimony paid. Investment income is not considered ‘earned income’ for RRSP purposes.

What happens if I don’t make a contribution to my RRSP in a given year?

If you are unable to make an RRSP contribution in a given year you can carry forward the unused portion of your allowable contribution to a later year.

How does my company pension plan affect my RRSP contribution limit?

If you ‘earned’ pension credits through your companies pension plan your allowable annual RRSP contribution limit will be reduced by the total value received. This is called your pension adjustment.

What happens if I over-contribute to my RRSP?

Currently Revenue Canada allows for a $2,000 lifetime over-contribution to your RRSP without incurring any penalty. However, if you over-contribute by more than the $2,000 allowable, you will have to pay a penalty of 1% per month for each month you are over your RRSP limit. Keep in mind, you are not allowed any tax deduction on over-contributions unless they are applied against the following tax year.

How can I apply my 2012 RRSP Contribution?

Once you have made your RRSP contribution in the first 60 days of 2013, you have some choices. You can apply it against your 2012 income or you can also delay claiming the deduction to a year that makes better tax sense. Your financial advisor or accountant can advise on this.

Can I withdraw funds from my RRSP?

If you need to make a withdrawal from your registered saving plan- be forwarned, withholding taxes will be deducted by your financial institution and remitted to Revenue Canada. In addition, you will have to claim the funds withdrawn as income on your next tax return and pay any additional taxes owed.
Effective January 1, 2005, the following withholding tax rates apply:

RRSP Withdrawal All Provinces Except Quebec

  • Up to and including $5,000 – 10%
  • $5,001 to $15,000 -  20%
  • More than $15,000  – 30%

All this might seem like a lot to keep track of, but help is available. As an experienced financial advisor, I listen to my clients and help them reach their goals. Please contact me to book your personal consultation to discuss your RRSP or any financial planning matter.

This article is intended as a general source of information and should not be considered as personal investment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication.