Author Topic: RRSP contribution questions  (Read 1816 times)

bluebelle

  • Pencil Stache
  • ****
  • Posts: 645
  • Location: near north Ontario
RRSP contribution questions
« on: February 25, 2022, 08:57:35 AM »
Just looking for confirmation on a couple of things:

1) a contribution made in Feb 2022 must be included/declared on my 2021 taxes, but I can choose to defer claiming the deduction until the 2022 tax year if I expect my income to be higher in 2022?

2) Contribution room is only created through earned income, but a contribution deduction can be against any taxable income.   Example, work in 2021, retire 2022 (pension and RRIF payments only), I can make an RRSP contribution in 2022 from the contribution room created from 2021's earnings, and deduct it from my 2022 taxable income during next year's taxes (2022)

3) can I open a RRSP if I converted my existing one to a RRIF

I understand that it may not make sense if the contribution year and withdrawal year are the same tax bracket.   

Mighty Eyebrows

  • Stubble
  • **
  • Posts: 238
  • Location: Vancouver Island, Canada
Re: RRSP contribution questions
« Reply #1 on: February 25, 2022, 06:01:17 PM »
1)  Yes, you can defer using the credit for as many years as you want.
2)  Yes, your generated RRSP room never disappears until you use it (contribute), but when you hit age 71 (or your spouse hits 71 if you have a spousal RRSP) you can't actually use it any more.
3)  Yes, you can have an RRSP and RRIF at the same time until you hit age 71. Also, you can convert a portion of your RRSP into a RRIF and keep your old RRSP going, if that is useful, up until age 71.

Even if your tax bracket in the contribution year and withdrawal year is the same, you get growth inside your RRSP without yearly tax-drag. The TFSA is more flexible if you anticipate that scenario, but RRSP works OK if you have already used all your TFSA room.

Edit: You may have a strategy in mind, but withdrawing from RRIF and contributing to RRSP in the same year seems like an unusual idea. I am curious what your thoughts are for that?
« Last Edit: February 25, 2022, 06:15:38 PM by Mighty Eyebrows »

bluebelle

  • Pencil Stache
  • ****
  • Posts: 645
  • Location: near north Ontario
Re: RRSP contribution questions
« Reply #2 on: February 26, 2022, 08:07:12 AM »
1)  Yes, you can defer using the credit for as many years as you want.
2)  Yes, your generated RRSP room never disappears until you use it (contribute), but when you hit age 71 (or your spouse hits 71 if you have a spousal RRSP) you can't actually use it any more.
3)  Yes, you can have an RRSP and RRIF at the same time until you hit age 71. Also, you can convert a portion of your RRSP into a RRIF and keep your old RRSP going, if that is useful, up until age 71.

Even if your tax bracket in the contribution year and withdrawal year is the same, you get growth inside your RRSP without yearly tax-drag. The TFSA is more flexible if you anticipate that scenario, but RRSP works OK if you have already used all your TFSA room.

Edit: You may have a strategy in mind, but withdrawing from RRIF and contributing to RRSP in the same year seems like an unusual idea. I am curious what your thoughts are for that?
thank you for the confirmation.

To answer your question:
My case is a little complicated.   I haven't converted to a RRIF myself, and I'm unsure whether 2021 or 2022 will be higher income years, I expect 2022 will be, but the cases haven't settled yet (it'll be in epic FU when it does).   Hence contributing to my RRSP in Feb to give me the option to decide later whether to use the contribution for the 2021 tax year.
DW retired early 2021 and started drawing a reduced DB pension.   I converted his RRSP to a RRIF Dec 2021 so that only his withdrawals above the minimum incur the 30% withholding tax.   I may have been overzealous in my withdrawal plan for him for 2022, but until my cases settle, his is our main source of income.   Contributing to an RRSP for him would just be my way of putting money back into his RRIF.   His contribution room isn't large because of the PA from his DB plan, and I had his RRSP fully funded up until last year.

We both have reasonably healthy RRSP/RRIF balances, not FatFire amounts, but enough that if we didn't start the drawdown before age 71, the minimum withdrawal amount in our 80s would bump us up into a higher tax bracket and potentially trigger OAS claw back.   My plan is for us to live primarily on RRIF and his DB pension until age 65.   I'm still undecided about deferring CPP/OAS until age 70, but I have lots of time to make that decision later.

Mighty Eyebrows

  • Stubble
  • **
  • Posts: 238
  • Location: Vancouver Island, Canada
Re: RRSP contribution questions
« Reply #3 on: February 26, 2022, 05:49:21 PM »
My case is a little complicated.

Interesting. I sympathize - early drawdown is a balancing act and there are few hard rules to follow. I am a big fan of delaying CPP/OAS but that always depends on your other planning (and estate intentions).

cdn5cents

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: RRSP contribution questions
« Reply #4 on: February 28, 2022, 06:16:32 AM »
1)  Yes, you can defer using the credit for as many years as you want.
2)  Yes, your generated RRSP room never disappears until you use it (contribute), but when you hit age 71 (or your spouse hits 71 if you have a spousal RRSP) you can't actually use it any more.
3)  Yes, you can have an RRSP and RRIF at the same time until you hit age 71. Also, you can convert a portion of your RRSP into a RRIF and keep your old RRSP going, if that is useful, up until age 71.

Even if your tax bracket in the contribution year and withdrawal year is the same, you get growth inside your RRSP without yearly tax-drag. The TFSA is more flexible if you anticipate that scenario, but RRSP works OK if you have already used all your TFSA room.

Edit: You may have a strategy in mind, but withdrawing from RRIF and contributing to RRSP in the same year seems like an unusual idea. I am curious what your thoughts are for that?
thank you for the confirmation.

To answer your question:
My case is a little complicated.   I haven't converted to a RRIF myself, and I'm unsure whether 2021 or 2022 will be higher income years, I expect 2022 will be, but the cases haven't settled yet (it'll be in epic FU when it does).   Hence contributing to my RRSP in Feb to give me the option to decide later whether to use the contribution for the 2021 tax year.
DW retired early 2021 and started drawing a reduced DB pension.   I converted his RRSP to a RRIF Dec 2021 so that only his withdrawals above the minimum incur the 30% withholding tax.   I may have been overzealous in my withdrawal plan for him for 2022, but until my cases settle, his is our main source of income.   Contributing to an RRSP for him would just be my way of putting money back into his RRIF.   His contribution room isn't large because of the PA from his DB plan, and I had his RRSP fully funded up until last year.

We both have reasonably healthy RRSP/RRIF balances, not FatFire amounts, but enough that if we didn't start the drawdown before age 71, the minimum withdrawal amount in our 80s would bump us up into a higher tax bracket and potentially trigger OAS claw back.   My plan is for us to live primarily on RRIF and his DB pension until age 65.   I'm still undecided about deferring CPP/OAS until age 70, but I have lots of time to make that decision later.

Stating obvious... RRSP contribution room is lost once used....  your desire to avoid OAS clawback, wouldn't having the contribution room available to manage potential clawbacks offer more advantages than the compensation for your "overzealous" withdrawal?  I would think so, especially on your first year of CPP, but I am interested in what others think.

bluebelle

  • Pencil Stache
  • ****
  • Posts: 645
  • Location: near north Ontario
Re: RRSP contribution questions
« Reply #5 on: February 28, 2022, 03:34:24 PM »
1)  Yes, you can defer using the credit for as many years as you want.
2)  Yes, your generated RRSP room never disappears until you use it (contribute), but when you hit age 71 (or your spouse hits 71 if you have a spousal RRSP) you can't actually use it any more.
3)  Yes, you can have an RRSP and RRIF at the same time until you hit age 71. Also, you can convert a portion of your RRSP into a RRIF and keep your old RRSP going, if that is useful, up until age 71.

Even if your tax bracket in the contribution year and withdrawal year is the same, you get growth inside your RRSP without yearly tax-drag. The TFSA is more flexible if you anticipate that scenario, but RRSP works OK if you have already used all your TFSA room.

Edit: You may have a strategy in mind, but withdrawing from RRIF and contributing to RRSP in the same year seems like an unusual idea. I am curious what your thoughts are for that?
thank you for the confirmation.

To answer your question:
My case is a little complicated.   I haven't converted to a RRIF myself, and I'm unsure whether 2021 or 2022 will be higher income years, I expect 2022 will be, but the cases haven't settled yet (it'll be in epic FU when it does).   Hence contributing to my RRSP in Feb to give me the option to decide later whether to use the contribution for the 2021 tax year.
DW retired early 2021 and started drawing a reduced DB pension.   I converted his RRSP to a RRIF Dec 2021 so that only his withdrawals above the minimum incur the 30% withholding tax.   I may have been overzealous in my withdrawal plan for him for 2022, but until my cases settle, his is our main source of income.   Contributing to an RRSP for him would just be my way of putting money back into his RRIF.   His contribution room isn't large because of the PA from his DB plan, and I had his RRSP fully funded up until last year.

We both have reasonably healthy RRSP/RRIF balances, not FatFire amounts, but enough that if we didn't start the drawdown before age 71, the minimum withdrawal amount in our 80s would bump us up into a higher tax bracket and potentially trigger OAS claw back.   My plan is for us to live primarily on RRIF and his DB pension until age 65.   I'm still undecided about deferring CPP/OAS until age 70, but I have lots of time to make that decision later.

Stating obvious... RRSP contribution room is lost once used....  your desire to avoid OAS clawback, wouldn't having the contribution room available to manage potential clawbacks offer more advantages than the compensation for your "overzealous" withdrawal?  I would think so, especially on your first year of CPP, but I am interested in what others think.
I got so tied up in the 'age 71' thing, I forgot that was the age limit for contributions, not the age limit to use prior unclaimed contributions.    Thanks for the reminder

 

Wow, a phone plan for fifteen bucks!