A Registered Retirement Savings Plan (RRSP) is a type of financial account that holds savings and investment assets. RRSP funds are crucial for retirement, so it is important to contribute to this fund each year. By contributing to your RRSP you are reducing your annual gross salary your income tax is calculated on, which may reduce the amount of tax you pay at tax time. But how much is too much? In this blog, we will discuss how to calculate your maximum annual contribution limit.
The maximum contribution amount is based on your yearly income; the current year’s maximum is limited to 18% of the previous year’s income up to a maximum amount of $27,230. If you have carried over contribution room from the previous years this amount will be added to the maximum amount. For example, if you had carried over $500 of contribution room from 2019, your 2020 RRSP maximum would be 19% of your 2019 total income plus the additional $500.
Please note: your earned income can be from an employer, business, rental properties, alimony and taxable maintenance.
2020 RRSP Deadline
The RRSP deadline this year is March 2, 2020. Contributions made in the first 60 days of the year can be applied against the previous year’s taxes or in any subsequent year.
Unused/Carried Forwarded RRSP Contributions
If you can’t make your maximum contribution in the year, you can carry forward that portion of the contribution in later years. The amount of your unused contribution limit is shown on your Notice of Assessment from the CRA.
For more information you can refer to the Registered Retirement Savings Plan (RRSP) resource by the CRA.