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Have you missed your chance to contribute to your RRSP this year?

Do you have money to contribute this year or are you focusing on improving your credit score and getting rid of some debt? Actually, if you need to, you can do it all. 

But first things first.

  • For the tax year 2023: the RRSP contribution deadline is February 29, 2024 

If you miss the RRSP contribution deadline, you’ll have to wait until next year to take advantage of the many benefits RRSPs can provide. 

Note: If you’re 71 years of age, there are additional rules for contribution. December 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP.

Here’s everything you need to know about making your RRSP contributions.  

When Can You Make An RRSP Contribution? 

You can contribute to your RRSP at any time, there are no rules for this. However, if you want your contributions to be included in your 2023 income tax filing, you need to make your contribution before February 29, 2024. 

How Much Can You Contribute Before The RRSP Contribution Deadline?

The amount you can contribute to your RRSP each year is regulated by the federal government. Your contribution room for the 2023 tax year is the lesser of:

  • 18% of your income from the previous year
  • The max annual limit set by the CRA (for 2023 it’s $30,780)

How Defined Contributions (DC) And Defined Benefits (DB) Plan May Reduce Your RRSP Contribution Room

Investors with an employer-sponsored pension plan, such as a defined contribution or defined benefits plan, may have their RRSP contribution room reduced by a pension adjustment.

A pension adjustment generally reduces your RRSP contribution room for the next year based on the value earned under an employer pension plan (i.e. defined contributions or defined benefits plan), deferred profit sharing plans (DPSP), or some other retirement plans. 

Penalties For Over Contributing To Your RRSP

One very important thing to remember about RRSP contributions is that there is a limit to which you can deposit during the year. The limit amount will also increase slightly every year. The current RRSP dollar limit is $29,210. If you go over this limit, you’ll be taxed 1% per month of any contributions more than $2,000 over the yearly RRSP limit.

How Will Your RRSP Contributions Affect Your Tax Return?

If you’re confused about how your RRSP contributions will affect your taxes, consider using a tax filing software like Turbotax. Turbotax can help you understand how much you should contribute to your RRSP before the deadline to get the greatest tax return. 

With Turbotax’s RRSP optimizing feature, you can: 

  • Get an estimate on how much your tax return will be for various RRSP contribution amounts, before filing. 
  • Get a walkthrough on how to report your RRSP contributions

Pay Off Debt Or Contribute To An RRSP?

Finding money to contribute to your RRSP isn’t always easy. Some people turn to debt, like personal loans, to add a lump sum to their RRSP with the hope that the refund they get will pay the loan.

However, taking on more debt is not for everyone. In fact, if you do have some money lying around you need to figure out if it is better to pay down some of your high-interest debt or contribute to an RRSP.

How Much Will The Loan Cost?

Is it worth taking out a loan and adding to your debt load just to contribute to your RRSP? Loans obviously cost money. Any tax refund you receive would need to at least cover the cost of the loan, thus it may not be worth it.  

If you decide to take out a loan to contribute to your RRSP, be sure to shop around for the best RRSP loan rates. The lower your interest rate, the easier it will be to pay off. 

Do You Want To Build A Better Credit History?

If you have a weak or poor credit score, paying off debt might help improve it. Taking out a loan to contribute to your RRSP and then making on-time monthly payments is a good way to build a positive credit history which, ultimately, can help improve your credit. 

If you don’t know your credit score, you can get it for free online through CompareHub or other free sites.

Why Should You Put Money Into Your RRSP Before The RRSP Contribution Deadline?

When you start contributing to an RRSP, not only are your contributions tax deductible but there are several other ways you can benefit.

Tax-Sheltered Earnings

RRSPs are not tax-free, they are tax-sheltered. This means that any money you earn from the investments in your RRSP is tax-sheltered until you retire and decide to start making withdrawals. Typically, Canadians decide to withdraw from their RRSPs later in life. When they are earning less income and are in a lower tax bracket. Therefore will pay fewer taxes on the money withdrawn.

U.S Stocks And Funds

Besides RRSP contributions being tax-deductible, there’s another big benefit of a RRSP. Unlike a TFSA, RRSPs are not subject to withholding taxes on their dividends for certain foreign-listed stocks and funds, including U.S. stocks and funds. 

In general, with TFSAs, 15% of your paid dividends on U.S. stocks is withheld for taxes. But with an RRSP, U.S.-denominated stocks and funds aren’t subject to a 15% foreign withholding tax on their dividends. 

Home Buyers’ Plan

If you are considering buying your first house, you can borrow up to $25,000 from your RRSP with the Home Buyers’ Plan. This withdrawal is tax-free and if you have a spouse, they can also borrow up to $25,000 from their RRSP. However, be aware that after a two-year grace period, you must pay yourself back within 15 years. The minimum yearly payment is 1/15 of the amount you borrowed from your RRSP, if you can pay it back sooner you can do so.

You must be considered a first-time home buyer in order to qualify for this plan. If you have previously owned a house you may still be able to qualify for this program if you have not owned a house in the past 4 years. Moreover, you can use this program in conjunction with the new First-Home Savings Account (FHSA). It’s meant to help first-time home buyers under the age of 40 buy a home by providing tax-free benefits.

Lifelong Learning Plan

With the Lifelong Learning Plan, you can withdraw up to $10,000 per year from your RRSP to cover the cost of full-time education or training. You can use the money to pay for your own education or for your spouse’s or common-law partner’s education. The maximum amount you can withdraw is $20,000 over four years. In this case, you must pay at least 10% of the withdrawals back each year, within 10 years of the withdrawal.

Spousal RRSPs

With a spousal RRSP, you’ll be able to make RRSP contributions to your spouse’s or common-law partner’s RRSP plan. If you contribute to the spousal RRSP before the RRSP contribution deadline, you’ll receive a tax deduction. 

The total contributions you can make to the spousal RRSP before the RRSP contribution deadline is up to your personal contribution limit. If you make more income than your spouse, you can contribute money to their RRSP, and in doing so receive an extra deduction on your tax return, along with the one you’ll get from your own RRSP.

While the age limit for contributions to your own RRSP is 71, you can continue to put money into your spouse’s RRSP until they turn 71, assuming they are younger than you. If you should pass away before your spouse does, the money in your RRSP will be transferred into an account registered in their name. 

What Is An RRSP?

A Registered Retirement Savings Plan (RRSP) is a type of account that you can open through your bank, credit union or other financial institution. The account is then registered in the Canadian Revenue Agency database. There are several different types of RRSP accounts, and once you have one established, you and your spouse or common-law partner can then make contributions to it, usually a fixed amount monthly.

Moreover, despite an RRSP being called a savings plan, you can hold a wide variety of qualified investments to grow your money, such as GICs, mutual funds, bonds, ETFs, and stocks.

The RRSP Contribution deadline for 2023 is February 29, 2024. Therefore, any money you’ve deposited into the account before this date is deductible on your tax return. Consult the Government of Canada website for more information on the yearly contribution limits.

Did You Miss The RRSP Contribution Deadline?

If you’re looking for a financially secure retirement, making contributions to your RRSP is a great idea. Even if you’re not earning as much income as you’d like, making small deposits into the account every month is a good way of ensuring that you’ll at least have a nest egg set aside for your golden years. If you’re looking for more information on how RRSPs can benefit you, speak to a financial advisor.

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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