Mark your calendars! The deadline to contribute to your RRSP for the 2020 tax year is March 1st, 2021. As the deadline approaches, our team put together some key information to help you prepare.
What is an RRSP?
A registered retirement savings plan (RRSP) is a government-registered account that helps Canadians save for retirement. As mentioned in a previous post, investing in an RRSP is not only a great way to plan for retirement, but also helps to save on taxes. With an RRSP, your contributions are tax-deferred, meaning you won’t have to pay taxes on your investments until you take the money out at a more tax-effective time–when you are retired.
What is the maximum contribution limit?
The total amount you can contribute to your RRSP each year is made up of your contribution limit for the current year, plus any extra contribution room carried from previous years.
For the 2020 tax year, the contribution limit is 18% of your earned income you reported on your tax return in the previous year, up to a maximum of $27,230. You are allowed to over-contribute up to $2,000 without penalty; however, you won’t receive a tax deduction for the excess amount.
If you are a member of a pension plan, your pension adjustment will reduce the amount you can contribute to your RRSP for the following year.
What are the types of investments you can hold in an RRSP?
Investments that can be held in an RRSP are known as “qualified investments.” These include:
- Preferred Shares
- Guaranteed Investment Certificates (GICs)
- Pooled and Mutual Funds
For a full list of the conditions placed on qualified investments, visit the Canada Revenue Agency (CRA) website.
Holding non-qualified investments in your RRSP can have tax-consequences and may result in penalties by the Canada Revenue Agency (CRA).
Can I contribute to my spouse’s or common-law partner’s RRSP?
Yes, you can contribute to your spouse’s or common-law partner’s RRSP. Contributions you make to a spousal or common-law partner’s RRSP can reduce your deduction limit. Read more here.
What is the age limit to contribute?
You can contribute to your RRSP up to December 31st of the year you turn 71. Once you turn 71, you can:
- Withdraw the money in cash
- Transfer the investments into a Retirement Income Fund (RRIF) or Registered Annuity, from which you must begin receiving retirement income
- Deduct unused RRSP contributions up to the amount of your RRSP deduction limit
What if I miss the deadline to contribute?
Contributions made to your RRSP after the March 1st, 2021 deadline cannot be claimed on your 2020 taxes and will instead be eligible for the 2021 tax year.
As we approach this very busy season, The RaeLipskie Partnership is here for you. Our experts will work with you to provide the best strategies for your retirement savings plan. If you have any questions or need any help regarding your RRSP contribution, contact us today