RRSP season is in full swing. If you’re planning to put money into a Registered Retirement Savings Plan, the time to act is now. Here’s what you need to know.



The deadline to make RRSP contributions for the 2018 tax year

This year, the deadline is March 1. You have until then to pump some funds into your RRSP and claim that contribution on your tax credit when you file your 2018 taxes later this year.


Contribution limits

Building up your retirement savings is great, but you have to pay attention to the contribution limit. The government imposes strict caps on how much money Canadians can save in their RRSPs.

First of all, in order to be able to contribute anything at all to an RRSP, you need to have had earned employment income and have filed your taxes.

The maximum you can save into an RRSP every year is 18% of your pre-tax earned income from the previous year, up to a ceiling that gets bumped up a bit every year. For 2018, that’s $26,230 (up from $26,010 in 2017).

However, if you’re lucky enough to have an employer-sponsored pension plan, your annual limit will be lower. The annual contribution limit is what you need to pay attention to if you’ve always made the maximum contribution to your RRSP.

If you haven’t hit your ceiling in previous years, one of the nice things about RRSPs is that you get a chance to catch up later.


Carry forward rules

If you haven’t been maximizing your RRSP contributions, your ceiling is different than the annual contribution limit. The two are separate and it’s important to know the difference.

For example, if you were eligible to contribute, say, $10,000 every year since 2016, but didn’t put in a dime into RRSP, you could, in theory, pour in $30,000 all at once by March 1 and receive a blockbuster tax refund this year.

Look for your unused contribution room in the notice of assessment from last year. That’s the file the Canada Revenue Agency kindly sends every Canadian after it has assessed their tax returns.


You can contribute now and ask for the tax refund later

Many Canadians await eagerly for their RRSP refund. After all, it’s one of the few instances in which we get a reward for sticking to a long-term goal like saving for retirement. So why postpone that bit of short-term gratification?

Here’s the thing. The government uses your tax rate to calculate your RRSP refund. This means that for a given amount of dollars in contributions, you’re going to get more money back if you’re earning a higher income and are being taxed at a higher rate.

If you have a relatively low taxable income right now but are expecting your earnings to go up in the future, you could consider making a contribution this year but not claiming the deduction until you’re in a higher tax bracket, said Gittens.

You’ll get more refund bang for your contribution bucks. In the meantime, your savings grow tax-free inside the RRSP.


What happens if you are over the limit

When it comes to RRSP contributions, too much of a good thing is bad. You’re allowed to overshoot your limit by up to a lifetime total of $2,000. The government will tax anything beyond that a penalty rate of one per cent per month.

If you think you’ve over-contributed to your RRSP, you should consult a tax accountant about addressing the issue.