2017 RRSP Contribution Deadline

The deadline for making an RRSP contribution for the 2017 tax year is March 1, 2018. That’s the final day you can make a contribution, which can be used as a deduction on your 2017 taxes.

How is it contribution limit determined?

The RRSP contribution limit is determined as the lesser of:

  • 18% of your earned income or
  • An amount specified by the Canada Revenue Agency (CRA). For 2017, the amount is $26,010.

Earned income includes any money made from employment (wages and tips) as well as things like alimony and rental income. Investment income, which encompasses dividends, interest, and capital gains are not included in the earned income calculation.

Why you should contribute earlier in the year

There are a couple good reasons for making your contribution early in the year:

  • Your money has more time to grow: By making an RRSP contribution early, you’ll be placing it in an account where it can grow without being subject to tax. This is true whether you purchase a riskier asset such as a stock or a more conservative product like a GIC.
  • You won’t rush to meet the deadline: Many people scramble at the last minute to make their RRSP contributions in late February. An easy way to avoid this stress is to make your contribution well in advance of the deadline.

Can you choose which year your contribution counts towards?

Yes. If you make a contribution in a certain year, it doesn’t mean you have to take the tax deduction for the same year. But you may also wish to defer taking the deduction itself to a future year if you think you’ll be making more money and thus be in a higher tax bracket.

Why it's important to keep track of your contributions

It’s crucial to keep track of your RRSP contributions so you don’t inadvertently go over the limit. While you are allowed a lifetime over-contribution of $2,000, anything past this amount get result in stiff financial penalties from the CRA.

Penalties for over-contributions

The CRA can levy stringent fines on Canadians who contribute more than $2,000 in excess of their stated RRSP limit. The fine can be 1% of the over-contribution per month that it remains in your RRSP. However, you’re allowed to apply to the CRA for a waiver of this fine. But there isn’t a guarantee your fine will be waived.

Unused contribution room carries over

Not able to make the full RRSP contribution in a given year? Don’t worry. Any unused contribution room you have carries forward into future years. As an example, let’s say have $10,000 of unused RRSP contribution room this year. And next year, your contribution limit is $5,000. That means you’ll have $15,000 in RRSP contribution room next year.

Note that when you turn 71, you no longer accrue RRSP contribution room. You must either convert your RRSP into a registered retirement income fund (RRIF), buy an annuity, or withdraw all of your money from your RRSP. It’s best to speak with a financial advisor to find out what’s best for you.

Contributing isn’t the same as investing

Some people make their RRSP contribution and leave it at that. This is a mistake. Once you’ve made your contribution, you need to decide how you’ll invest the money. Remember, the benefit of RRSPs is that they allow you to shelter investment gains until the age of 71 so you don’t have to pay tax on dividends, interest income, and capital gains.

Experts typically recommend being somewhat more aggressive with RRSP investments when you’re younger and becoming more conservative as you near retirement. For example, you’ll want to hold more stocks (or equity investments) when you’re younger and more bonds (or fixed income investments) when you’re older.

Common RRSP investment

There are a wide range of ‘qualified’ RRSP investments. These include:

  • Mutual/index funds
  • Individual stocks
  • Exchange-traded funds (ETFs)
  • Cash
  • GICs
  • Shares in Canadian small business corporations
  • Gold and silver bars

Diversification is key

It’s important to maintain a diversified RRSP portfolio. That way, if one of your investments underperforms, another one may balance it out. Needless to say, having all your eggs in one basket is not a recommended strategy.