Overcontributing To Your RRSP Can Be An Expensive Mistake

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Overcontributing To Your RRSP Can Be An Expensive Mistake

 

RRSP

 

An RRSP is one of the best investment tools that many Canadians use to save for their retirement. Saving  for your retirement also allows for a deduction on your tax return that provides you with tax savings. There are strict rules surrounding the RRSP contribution limits. CRA does try and assist you in
preventing overcontributions by tracking your contribution room and setting out your limit for the
following tax year on your Notice of Assessment. Generally, each year that you do not fully use your
contribution limit, the excess can be carried forward and added to your room for the following tax year. If
you are a member of a pension plan, your contribution limit will be affected by your pension adjustment
(set out on your T4) and is included in CRA’s complex computation of your limit on your NOA.

Although taxpayers are encouraged to contribute as much as possible, if contributions exceed your limit
by more than $2,000, it will result in an overcontribution. CRA imposes penalties of 1% per month to the
overcontributions in the calendar year. To avoid penalties, you can withdraw the excess cumulative
amount as well which is not a simple process.

It is critical to save for retirement. RRSPs are still one of the best tax planning measures to do so. Be
careful though, overcontributing can be a very expensive mistake. Seek professional advice if you need
help in understanding your contribution limit or think you may have overcontributed.

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