Test your knowledge about RRSPs – part 2

Author: Sound Choices

February 21, 2019

The content in the article below is meant for Canadian investors only.

RRSP Season series:
Testing your knowledge about RRSP contributions

How much do you know about Registered Retirement Savings Plans (RRSPs)?

Last week, we covered what you need to know before opening an RRSP. Read on to test your knowledge about RRSP contributions.

1. The contribution deadline for the 2018 tax year is March 1, 2019 23:59 (local time).

Unlike RESPs and TFSAs, where the contributions have to be made by December 31.

2. Contributions made in the first 60 days of the year can be applied to either tax year.

In other words, contributions made during the first 60 days of 2019 (up to and including March 1, 2019) can be applied against income earned in either the 2018 or 2019 taxation year.

3. The contribution limit of $26,230 for 2018 is not the maximum amount you can contribute.

Your contribution limit is calculated as 18% of your earned income from the previous tax year, minus any pension adjustments, plus unused contribution room from previous years.

To find out how much your contribution limit is see your previous year’s Notice of Assessment from the Canada Revenue Agency (CRA) or access your information online using the My Account feature on the CRA website at www.canada.ca/en/revenue-agency.

4. If you don’t contribute your maximum amount, you don’t lose that contribution room.

The amount left over gets added to your contribution limit for the next year. In other words, RRSP contribution room can be carried forward indefinitely to subsequent years.

5. You can go over your contribution limit – but only by $2000.

You’re considered to have over-contributed to your RRSP if:

(unused contributions from previous years) + (this year’s contributions)
> (your RRSP contribution limit*) + $2,000**

* You can find your contribution limit on your latest Notice of Assessment.
** You only qualify for the additional $2,000 if you were at least 18 years old at any time in the previous calendar year.
Source: https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4040/t4040-18e.pdf

6. Over-contribute any more than $2,000 and you will pay a penalty tax.

A penalty tax of 1% per month on the over-contributed amount may apply until withdrawn from the plan.

7. You can claim the over-contribution.

Over-contributions can be used as deductions in future years.

8. All or part of the RRSP contributions can be put into an RRSP in a spouse’s name.

With a Spousal RRSP, Contributor receives a tax deduction, but their spouse or common law partner is the registered owner/annuitant of the plan. For example, an investor with contribution room of $7,200 for this year can contribute $5,000 to their own RRSP and $2,200 to a spousal RRSP or the full $7,200 to the spousal RRSP.

9. You can have both a spousal and non-spousal plan.

You can have a regular non-spousal plan where you are the contributor, you get the tax deduction and the contribution limit is based on your earned income.

But you can also have a spousal plan, where the plan is in your name, but, as described above, your spouse makes the contributions based on their contribution room and receives the tax deduction.

10. You can transfer unused RESP money to your RRSP.***

Up to $50,000 of the income earned in the RESP can be contributed into the subscriber’s RRSP or a spousal RRSP – provided the subscriber has sufficient RRSP contribution room.

Any government grants must be returned.

*** The following conditions must be met:
› The RESP has been in existence for at least 10 years or the beneficiaries are deceased
› All current and former beneficiaries must be at least 21 years old
› All current and former beneficiaries are not pursuing post-secondary education
› The subscriber is a resident of Canada

A financial advisor can help you figure out the best way for you to save for your retirement. Talk to a financial advisor to learn how they can help you and visit AGF.com/RRSP.

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