Avoid RRSP tax penalties
What happens if you go over your RRSP contribution room?
Good news: The CRA gives you a $2,000 cushion for over contributing to your RRSP. So, you can contribute up to $2,000 over the annual maximum limit without being penalized.
Some people like to intentionally use that $2,000 as “extra space” to contribute more money to their RRSP. We don’t recommend it. Once you use up that $2,000 there’s no room for error. Any overpayment will cost you.
The penalty for overpaying your RRSP is 1% per month for any amount exceeding the $2,000 cushion. If you overpay by accident, exceeding the $2,000 limit, you need to take the extra assets out of your RRSP as soon as possible. Once they’re withdrawn, the CRA will stop charging a 1% monthly penalty on them.
Who can contribute to an RRSP?
You can contribute to an RRSP if you:
Have earned income
Have a social insurance number
Filed a tax return
Have RRSP contribution room available
Are under 71. The end of the year that you turn 71 is your last opportunity to contribute.
Figuring out how much to contribute to your RRSP is important. Do it right, and you maximize your tax savings now, while setting yourself up for a good income after retirement. Do it wrong, and you could find yourself paying more taxes than you have to.
Author: The Link Between