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RRSP Contribution Limit 2017

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Canada’s registered retirement savings plan is one of the most useful retirement savings tools in the world. It allows Canadians to put a percentage of their incomes away in a tax-deferred account that shelters investment growth until they convert the savings plan to an income-generating registered retirement income fund (RRIF).

The accounts were introduced in 1957 to give Canadians the option of saving more for retirement than would otherwise be provided by government or workplace pensions. These additional savings have allowed three generations of Canadian retirees to significantly enhance their post-work lifestyles.

CRA wants to encourage use of these savings plans and does several things to keep taxpayers apprised of their RRSP contribution options.

What’s the 2017 Contribution Limit?

Since the money is tax sheltered, CRA establishes strict annual contribution limits. The maximum contribution limit for 2017 is $26,010, up slightly from $25,370 in 2016. CRA makes a practice of posting the coming year’s annual maximum shortly after the close of the contribution window for the prior tax year. So, the 2017 number was announced shortly after taxpayers finished making their 2015 RRSP contributions.

A taxpayer may contribute the lower of 18% of his or her income from the prior year (which includes CPP or QPP disability payments, any income from being self-employed, and net income from rental properties); or the year’s maximum contribution limit, subtracting contributions an employer makes to a sponsored pension plan.

Both your annual income (Box 14) and pension contributions (coded as PA) will appear on your annual T4 slip.

How to Determine Your RRSP Contribution Limit

Each year, the Canada Revenue Agency (CRA) processes your tax return and sends you a notice of assessment (NOA) that informs you of your refund amount. It also serves as an indication CRA has accepted your return and won’t be auditing your income.

That NOA also has line items indicating your current year’s RRSP contribution limit, as well as unused contribution room.

If you can’t find them (or if you’re new to Canada and are contributing for the first time but have never received an NOA), you can call CRA’s tax information phone system at 1-800-267-6999. You should have a copy of your previous tax return and Social Insurance Number handy when you make this call.

RRSP Contribution Deadline

Contribution windows for RRSPs are a bit odd. CRA allows taxpayers to make RRSP contributions for the prior tax year in the first 60 days of the current year. For example, taxpayers were allowed to make contributions toward the 2016 RRSP limit until March 1 of 2017. Keeping the window open allows Canadians to set aside money for retirement after they’ve recovered from end-of-year spending.

Up until the early 2000s, Canadian banks and financial advisors used to refer to the first 60 days of the calendar year as “RRSP season,” because they were characterized by large transfers of cash into retirement investment plans. Many mutual fund companies also timed release of new products to coincide with the start of RRSP season in order to give advisors something fresh to talk up with clients.

More recently, though, advisors have strongly encouraged clients to simply contribute regularly–either monthly or with every paycheque–to ensure they’re taking full advantage of RRSP benefits.

Keep Track of Your RRSP Contributions

Those making regular contributions need to keep track of how much cash they’ll ultimately squirrel away within the RRSP. It’s important to not exceed the annual contribution limit, unless the taxpayer has contribution room left over from prior years.

CRA penalizes those who put too much money into an RRSP–and those penalties apply regardless of whether the over-contribution was deliberate or accidental. Which is why many taxpayers who contribute regularly use their scheduled contributions to cover CRA’s prescribed annual limit and then harness the 60-day post New Year’s window to put in additional funds to use up contribution room left over from prior years.

Consequences of Over-contribution

There are minor protections for taxpayers who accidentally over-contribute to an RRSP. First, CRA provides a $2,000 grace sum that it essentially overlooks. But if the over-contribution exceeds $2,000, it will apply a 1% monthly penalty–which can add up if not addressed. CRA may waive the penalty if taxpayers can prove the over-contribution was inadvertent, but they’ll have to provide documentation.

Otherwise, the taxpayer needs to file a T3012A–“Tax Deduction Waiver on the Refund of your Unused RRSP, PRPP, or SPP Contributions from your RRSP.” The excess amount will have to be withdrawn and copies of the form must be sent to both CRA and the financial institution.

Unused RRSP Contribution Room

To actively encourage RRSP participation, CRA allows taxpayers to carry forward dollar amounts they were unable to take advantage of in previous years. Any unused RRSP room a taxpayer accumulates in 1991 or later can simply be carried forward to a later year.

Say, for example, you’ve decided to make saving for your children’s educations your top financial priority. You might be worried that this decision is preventing you from saving for retirement. Don’t be. Many older Canadians bulk load their RRSPs upon becoming empty nesters when financial priorities change. Doing this does mean you’ll lose the growth you would have enjoyed by taking advantage of annual contributions, but your contribution room isn’t a use-it-or-lose-it proposition. It grows every year.

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