RRSP contribution deadline and CRA rules reminder

RRSP contribution deadline 2018The March 1, 2018 RRSP contribution deadline approaches! As such, many Canadians are about to make a last minute contribution to their RRSP account.

RRSP contribution deadlines for 2017 tax year

  • December 31, 2017
  • March 1 (First 60 days of 2018).

Here are some important deadlines to remember at this time. Make sure your personal contact information is up-to-date, so you have all of the documents you need to file your taxes.

You may get additional documents from other financial institutions, wherever you have accounts. Our financial advisers are here to help if you have any questions!

RRSP deadlines and more for tax time

 

Why the RRSP contribution deadline matters to you

The Canada Revenue Agency (CRA) lets you make RRSP contributions for the previous tax year, in the first 60 days of the following year. They do this to give you time to find out how much employment income you earned in the last tax year.

It’s common for people to set up automatic contributions. They’re investing on autopilot throughout the year. Even if you did that, you might have some unused contribution room afterwards.

(By the way, our advice is to set up a regular contribution plan that lines up with your payroll deposit, so that it’s an automatic habit and you can get on with more important things than worrying about your savings.)

On the other hand, many people wait to the last minute. That’s just human nature. If you were unable to contribute regularly throughout the year, that’s OK. Now you can make a one time lump sum deposit before the deadline. Here’s what you have to do.

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What is your RRSP limit?

With the deadline looming, you may wonder “How much can I contribute to my RRSP?”

The simple answer is “18% of your income, each year.” However, there are some additional details to understand.

RRSP contribution limits are based on earned income.. This includes employment income, net rental income, self employed business income, and more.

It does not include things like investment income, capital gains, and pension income (For a comprehensive list of what does and doesn’t count see this article by Grant Thornton).

So, 18% of your previous year’s earned income is added as RRSP room for the current year, up to an annual maximum amount. For the 2015 tax year the maximum is $24,930 (CRA keeps a list of the RRSP limit, as well as some others, here).

Any unused room carries forward. Couldn’t maximize your contributions last year? No problem. Whatever room was left is added to your contribution limit for this year.

Are you a member of a pension plan or deferred profit sharing plan? Then your RRSP room will be reduced by something referred to as a Pension Adjustment. This represents the current value of the pension benefits you accumulated in the year.

A few more tips around RRSPs

A lot of Canadians start thinking about TFSA accounts around this time. That’s not a bad thing. For now, what you need to know is that your RRSP is great for long-term retirement savings. The TFSA is used more to improve cash flow for short-to-medium term budget items. Here’s a helpful overview showing the difference between a TFSA and RRSP. But for now, let’s get your RRSP sorted, since the TFSA doesn’t have a contribution deadline coming soon.

One last note on this topic: your RRSP is not an emergency fund. Taking money out of your RRSP during the year will negatively impact your contribution limit. Avoid it, if at all possible.

Now, on to the big question: how do your find out your contribution limit?

How to find out your RRSP contribution limit

To find the exact amount you can contribute to a RRSP, refer to your previous year’s Notice of Assessment. The CRA mails it to you after they process your tax return. It which shows your RRSP deduction limit.

If you don’t have this form, CRA provides the info in a few other ways. Check their online access portals My Account or MyCRA. Alternative, try to get the information over the phone through the Tax Information Phone Service (TIPS) at 1-800-267-6999.

Once you find your deduction limit, just subtract any RRSP contributions that you made between Mar. 3, 2015 – Dec. 31, 2015 to arrive at your remaining 2015 limit. This is the final amount you can ‘top up’ for 2015.

Get a head start on your 2018 RRSP contributions

If you really want to get in control of your finances for 2016, you can estimate your 2016 RRSP limit.  Set up a regular contribution plan to gradually save the money throughout the year.

This is easiest to do if your primary source of income is employment income. To estimate your 2016 RRSP limit, you’ll need to know your 2015:

  • Employment income
  • Pension Adjustment
  • RRSP carry forward amount (i.e. unused room)

Refer to the Year to Date gross income from your last pay stub of 2015 for an unofficial estimate of your employment income. Alternatively, refer to box 14 (Employment Income – line 101) on the T4 Statement of Remuneration Paid. You should have received that form from your employer (here’s an example).

As you’ll see, Box 52 on the T4 also shows your Pension adjustment on line 206. Your unused room is simply the RRSP limit discussed earlier minus any contributions you make for the 2015 tax year.

Putting it together, you can estimate your 2016 RRSP limit by doing some simple calculation:

  1. Multiply 18% by your 2015 Employment Income, or
  2. Add your 2016 RRSP maximum of $25,370 plus the 2015 RRSP room carried forward (unused room if you didn’t maximize for 2015 by this year’s deadline). Now, deduct the 2015 Pension Adjustment.

The last step is to divide the 2016 limit by the number of pay periods you have in a year. Use that amount as a regular contribution to your RRSP. Are you paid monthly? Then just divide by 12. If you are paid semi-monthly, divide by 24. If you are paid bi-weekly, divide by 26. Now you’ve got the right number!

With automatic contributions, the RRSP contribution deadline may loom less large

After all, it’s not always easy to come up with a large lump sum payment of several thousand dollars all at once. (And if you’re thinking about borrowing to invest in your RRSP… don’t.) Setting up a regular contribution like this with your payroll helps you feel better about your financial future.

Want to make your RRSP contribution? Have questions about your RRSP? Just login to your WealthBar dashboard to set up a deposit or to talk to your advisor. Not a client yet? Signup to get started.