RRSP’s Contribution Limits and Withholding Taxes
November 1, 2008 by admin
RRSP’s Contribution Limits and Withholding Taxes
It’s important to know how much you are allowed to put into your RRSP. If you over contribute, you will get penalized by the government.
Your allowable RRSP contribution for the current year is the lower of:
- 18% of your earned income from the previous year, or
- The maximum annual contribution limit for the taxation year, or
- The remaining limit after any company sponsored pension plan contributions.
Earned income includes salary or wages, alimony received, and rental income, among other income sources, but does not include items such as investment income.
3 Ways to Find out Your RRSP Contribution Limit
There are three easy ways to find out the amount of RRSP contributions you are allowed to deduct for your income taxes.
1) Check Last Year’s Income Tax Notice of Assessment. Your RRSP deduction limit can be found in the RRSP Deduction Limit Statement on your latest Notice of Assessment or Notice of Reassessment.
2) Call the Tax Information Phone Service (TIPS) at 1-800-267-6999. The service is available from the middle of September to April 30. You will be asked for your Social Insurance Number, your month and year of birth, and the total income you reported on line 150 of your income tax return for the previous year.
3) Use the My Account Service You can also use the Canada Revenue Agency My Account service online to find out the limit of your RRSP contributions allowed for your income taxes.
Please note that before you can access the My Account tax service for the first time, you must register for a Government of Canada epass.
Company Pension Plan or Deferred Profit Sharing Plans
As a member of a company-sponsored registered pension plan or deferred profit sharing plan, the amount that you can contribute to your RRSP must be reduced by the total value of the pension credits you earned for the year.
This amount is referred to as a pension adjustment (PA) and it is reported on the T4 slip (Statement of Remuneration Paid) that you receive from your employer.
Annual Contribution Deadline
To be eligible for an RRSP deduction in a specific taxation year, you can make contributions anytime during the year, or up to 60 days into the following year.
Carry-forwards
If you can’t make your maximum contribution one year, you can make up that portion of the contribution in later years by carrying it forward. The amount of your unused contribution limit is shown on your federal Notice of Assessment.
You may also choose to delay claiming your current year’s RRSP tax deduction. To take the deduction in a later year, you must make sure that your allowable deduction limit has not been reached.
Over Contributing to your Plan
If you make an RRSP contribution beyond your maximum allowable amount for a year it is considered an over-contribution. There is a lifetime allowance of $2,000 for over-contributions. These contributions must be used before any new contributions are applied.
Annual Contributions
You may contribute to your RRSP until December 31 of the year in which you reach age 71. The following limits and deadlines apply annually.
Maximum annual RRSP contribution limits
Year Contribution limit
- 2007 $19,000
- 2008 $20,000
- 2009 $21,000
- 2010 $22,000
You may open as many RRSP’s as you wish. You are free to transfer your RRSP’s between financial institutions at any time without being subject to tax.
You can also move some or all of your money between eligible investments within your RRSP. There are no tax consequences if transferring between RRSP’s. You must use an approved transfer form to do so however. Your Financial Advisor will help with that.
Withholding Taxes
Funds withdrawn from an RRSP will be charged withholding taxes. This amount must be held back by the plan administrator and remitted to the government on your behalf.
Effective January 1, 2005, the following withholding tax rates apply:
Amount of RRSP Withdrawal All Provinces Except Quebec
- Up to and including $5,000 10% 21%
- $5,001 to $15,000 20% 26%
- More than $15,000 30% 31%
You will receive a T4 RRSP receipt for any funds withdrawn during the year showing the amount to be included in your taxable income and the credit for the withholding tax.
Be sure to read the article “RRSP Math”. It will explain some of the numbers behind all this.