RRSPs: Know your limits (2024)

FAQs

How do I know how much I can contribute to RRSP? ›

An RRSP deduction limit is the maximum amount of money you can contribute to your RRSP and claim as a tax deduction on your income tax return. More specifically, it's the lesser of 18% of your income from the previous year or the annual limit set by the CRA (up to a maximum of $30,780 for tax year 2023).

Generally speaking, you should aim to contribute at least 10% of your gross income each year to your retirement savings. Start contributing in your early 20s, and that 10% per year could add up to a sizeable savings and a comfortable retirement. Start later in life—say, your late 30s—and 10% a year may not cut it.

However, unless you maximize your RRSP contributions every year, you will likely cheat yourself out of significant benefits at retirement. To take advantage of tax-free compounding over time, it is vital to contribute as much money every year you can and as early as possible.

Generally, you have to pay a tax of 1% per month on your unused contributions that exceed your RRSP deduction limit by more than $2,000.

You can find your RRSP deduction limit by going to: Form T1028, Your RRSP Information for YEAR: The CRA may send you Form T1028 if there are any changes to your RRSP deduction limit since your last notice of assessment or reassessment, or if the RRSP deduction limit statement was not included on your notice.

By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations. If you're not reaching these benchmarks, it's okay. You can get on track.

The amount of new contribution room you get each year is equal to 18% of your earned income (meaning money that you work for, not investment income or government benefits you receive), up to a cap (called the allowable limit) that changes annually.

You can make a withdrawal from your RRSP any time¹ as long as your funds are not in a locked-in plan. The withdrawal, however, is subject to withholding tax and the amount also needs to be included as income when filing your taxes. There are situations in which tax-deferred withdrawals can be made from your RRSP.

Why is my RRSP contribution limit negative? ›

Note: If your available contribution room is a negative amount (shown in brackets), you have no contribution room available for 2022 and may have over contributed to your RRSP. If this is the case, you may have to pay 1% monthly tax on any excess contributions.

You report all RRSP contributions on line 208 of your T1 General Income Tax Return. Your financial institution will provide you with RRSP receipts. Contributions made from March to December in each year are reported in the calendar year they are made.

The 4% rule for retirement budgeting suggests that a retiree withdraw 4% of the balance in their retirement account(s) in the first year after retiring, and then withdraw the same dollar amount, adjusted for inflation, every year thereafter.

How long will $500,000 last in retirement? If you've saved $500,000 for retirement and withdraw $20,000 per year, it will probably last you 25 years. Of course, it will last longer if you expect an annual return from investing your money or if you withdraw less per year.

The 50/30/20 rule is a budgeting technique that involves dividing your money into three primary categories based on your after-tax income (i.e., your take-home pay): 50% to needs, 30% to wants and 20% to savings and debt payments.

If you did not deduct all of the contributions you made to your RRSP, PRPP, or SPP or your spouse's or common-law partner's RRSP, or SPP, you have two options: you can leave the unused contributions in the plan. you can withdraw the unused contributions.

An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan.

So, 18% of your earned income for the previous year, up to the current year's maximum contribution limit, becomes your RRSP room for the year. For 2024, the maximum new RRSP room a taxpayer can earn is $31,560 for those with at least $175,333 of earned income in 2023.

Both types of accounts shelter interest and investment income from tax. TFSA contributions are not tax-deductible. The tradeoff, however, is that withdrawals from a TFSA are tax-free. RRSP contributions are tax-deductible, which means that they can help reduce the amount of tax you pay for that year on your income.