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RRSP Deduction Limit - What is it?

What is it? If you make regular and generous contributions every year to your RSPs, this is something you should pay attention to. The limit is something that you, the investor, needs to know, because the person across the desk from you in the bank might not care if you exceed your limit. But *you* should.

This is NOT a post on what an RRSP is, nor how best to maximize your retirement savings. Nor will it go into the ins'n'outs, rules, types and benefits of an RRSP. The point of this post is to make one point clear - don't go over your limit.

Every year that you file your taxes, your RRSP deduction limit increases - by 18% of your earned income, up to a maximum deduction limit set for a given year (in 2021 it was $29,210).

  • If you've never contributed to an RRSP, or you contribute a small amount each year, then you will probably have more than enough space to comfortably contribute. Check your Notice of Assessment (NOA) from the Canada Revenue Agency (CRA) for your current deduction limit - you'll be surprised at the size of the number.

  • If you regularly contribute a larger amount, sometimes close to the maximum, you need to know your limit, because you do not want to surpass it by more than $2,000. The CRA will charge you a 1% tax per month on the amount over the $2,000 threshold.

Many of our clients call us around this time of year, and especially the first 3 months of the new year, to confirm what their deduction limits are. Often, they're in their banker's office, wisely confirming their limits before committing to a new RRSP purchase.

For the full skinny on deduction limits from the CRA, check this website.

For details on what to do if you have passed your limit, check this CRA website.

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