Author Topic: Maxed out RRSP - Contribution and Deduction Question  (Read 1864 times)

max9505672

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Maxed out RRSP - Contribution and Deduction Question
« on: March 25, 2022, 07:36:16 AM »
Hi all,

I have a question regarding my maxed out RRSP regarding contributions and deductions.

From CRA, my:

2021 RRSP deduction limit: 16k$
Unused RRSP contribution availble to deduct for 2021: 17k$

What I understand from this is that, since I already have 1k$ more in my RRSP than my limit, I could not contribute anymore to my RRSP in 2021.

However, on January 1st 2022, I gained extra RRSP room based on my 2021 income. Let's assume I gained 10k$. So, between January 1st, 2022 and march 1st 2022, I invested 10k$ my RRSP. My understanding was that this would increase my deduction limit for 2021 to (16k$ + 10k$ = 26k$). However, my 2021 RRSP deduction limit on CRA is still at 16k$.

Is that normal? Or is it because the CRA has not been updated? Or is it because that extra deduction limit will be for next year (2022)?

Thank you!

bluebelle

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Re: Maxed out RRSP - Contribution and Deduction Question
« Reply #1 on: March 25, 2022, 08:23:55 AM »
the $10K RRSP contribution room you earned is for the 2022 tax year, based on earned income from 2021.   You will need to report it on your 2021 taxes and it will become unused RRSP contributions carried forward for your 2022 taxes.

RRSP contribution room is always based on the previous year's earnings plus any unused contribution room carried forward.

Everyone is permitted to over-contribute $2K without penalty, this is a lifetime maximum, not annual.   It allows for small miscalculations in contributions without penalty

max9505672

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Re: Maxed out RRSP - Contribution and Deduction Question
« Reply #2 on: March 25, 2022, 11:05:53 AM »
the $10K RRSP contribution room you earned is for the 2022 tax year, based on earned income from 2021.   You will need to report it on your 2021 taxes and it will become unused RRSP contributions carried forward for your 2022 taxes.
Are you certain? I was under the impressions the March to December 2021 period + Jannuary 2022 to March 1st 2022 period were for the 2021 taxes.

Why are financial institutions offering RRSP load before March 1st?

Everyone is permitted to over-contribute $2K without penalty, this is a lifetime maximum, not annual.   It allows for small miscalculations in contributions without penalty
Let's say you have maxed out your contributions, when do you ''unlock'' your new contribution? For example, I was maxed out in 2021, couldn't contribute to my RRSP anymore. Do I gain an additional 18% (based on my 2021 income) on January 1st 2022?

bluebelle

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Re: Maxed out RRSP - Contribution and Deduction Question
« Reply #3 on: March 26, 2022, 04:54:05 AM »
the $10K RRSP contribution room you earned is for the 2022 tax year, based on earned income from 2021.   You will need to report it on your 2021 taxes and it will become unused RRSP contributions carried forward for your 2022 taxes.
Are you certain? I was under the impressions the March to December 2021 period + Jannuary 2022 to March 1st 2022 period were for the 2021 taxes.

Why are financial institutions offering RRSP load before March 1st?

Everyone is permitted to over-contribute $2K without penalty, this is a lifetime maximum, not annual.   It allows for small miscalculations in contributions without penalty
Let's say you have maxed out your contributions, when do you ''unlock'' your new contribution? For example, I was maxed out in 2021, couldn't contribute to my RRSP anymore. Do I gain an additional 18% (based on my 2021 income) on January 1st 2022?

I don't think I was clear in my explanation.   January 1 2022, your 2022 RRSP contribution room is 'unlocked' based on your 2021 income (minus any pension adjustments), but you can only claim the contributions on your 2022 taxes next year.   Contributions made between January 1 2022 and March 1 of 2022 must be claimed on your 2021 taxes, and the contribution will be applied to you reduce your 2021 taxable income if you have 2021 contribution room available.   In your case, you do not, so those contributions will be carried forward to be applied again 2022 taxable income when you do your taxes next year.

max9505672

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Re: Maxed out RRSP - Contribution and Deduction Question
« Reply #4 on: March 26, 2022, 10:48:53 AM »
the $10K RRSP contribution room you earned is for the 2022 tax year, based on earned income from 2021.   You will need to report it on your 2021 taxes and it will become unused RRSP contributions carried forward for your 2022 taxes.
Are you certain? I was under the impressions the March to December 2021 period + Jannuary 2022 to March 1st 2022 period were for the 2021 taxes.

Why are financial institutions offering RRSP load before March 1st?

Everyone is permitted to over-contribute $2K without penalty, this is a lifetime maximum, not annual.   It allows for small miscalculations in contributions without penalty
Let's say you have maxed out your contributions, when do you ''unlock'' your new contribution? For example, I was maxed out in 2021, couldn't contribute to my RRSP anymore. Do I gain an additional 18% (based on my 2021 income) on January 1st 2022?

I don't think I was clear in my explanation.   January 1 2022, your 2022 RRSP contribution room is 'unlocked' based on your 2021 income (minus any pension adjustments), but you can only claim the contributions on your 2022 taxes next year.   Contributions made between January 1 2022 and March 1 of 2022 must be claimed on your 2021 taxes, and the contribution will be applied to you reduce your 2021 taxable income if you have 2021 contribution room available.   In your case, you do not, so those contributions will be carried forward to be applied again 2022 taxable income when you do your taxes next year.
Got it, makes sense!

Not that straightforward when you’re maxed out.

Mighty Eyebrows

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Re: Maxed out RRSP - Contribution and Deduction Question
« Reply #5 on: March 27, 2022, 11:50:25 AM »
A side note on the "first 60 days" of the year. As @bluebelle mentioned, any RRSP contributions in that period should be reported on the previous year's return (2021 in this case), even if you aren't using them as a deduction for 2021. However, many people forget or neglect to report these contributions in 2021 since in their minds they happened in 2022. They then just claim them later for 2022 as if they were made in the rest of the year.

As far as I am aware, CRA doesn't go out of its way to punish people for this "misreporting." As long as you aren't claiming a deduction in a year you are not eligible for it, they don't seem to get too persnickety.

However, to avoid this grey area, I always wait until March 3rd before doing any RRSP contributions for the year.