RRSPs: Know your limits
What is an RRSP?
A registered retirement savings plan (RRSP) allows savings for retirement to grow tax free in a special plan registered with the Canadian government. RRSPs are a key part of retirement planning because of the tax advantages they offer. But you need to know the rules to get the most mileage out of RRSPs and avoid tax penalties.
RRSP contribution limit
- The total amount you can contribute to your RRSP each year is made up of your contribution limit for the current year plus any "carry-forward" contribution room from previous years.
- Your RRSP contribution limit for 2018 is 18% of earned income you reported on your tax return in the previous year, up to a maximum of $26,230. For 2017, the upper limit was $ 26,010. If you have a company pension plan, your RRSP contribution limit is reduced – see the last bullet point below for details.
- If you don't make the maximum allowable RRSP contribution in any given year, Canada Revenue Agency (CRA) lets you carry forward the unused contribution room indefinitely and add this to the amount you can contribute for future years.
- Both your annual contribution limit and any carry-forward contribution room are shown on your notice of assessment.
- Do you have an employer-sponsored pension plan? If so, your RRSP contribution limit is reduced by the pension adjustment. The pension adjustment is calculated by your employer and reported to the CRA on your T4 each year. If you're a member of a defined contribution registered pension plan (RPP) or defined profit sharing plan (DPSP), your pension adjustment is the total contributions to the plan made by you and your employer. If your RPP is defined benefit, your pension adjustment is determined by a formula designed to reflect the pension benefit entitlement you earned in the year. For more information, see the CRA website.
Age limit on contributions
You can contribute to your RRSP up to December 31 of the year you turn 71. Also, by December 31 of that year, you must convert to a registered retirement income fund (RRIF) or purchase an annuity to avoid having the value of your RRSP fully taxed in the year. Since there are tax and other implications to consider, an advisor can help you determine the best option for you based on your personal situation.
This information is a guideline only and is current as of the publication date. This information is not intended to provide specific financial, tax, investment, legal or accounting advice. For further details, visit the CRA website.
Looking for the next step?
A financial advisor can help you create a plan that is tailored to your life and your specific needs. We offer solutions that can help meet your savings goals during RRSP season - and all-year round.
- Sun Life Granite Managed Solutions – Broad diversification: Portfolios that focus on diverse investments help you take advantage of market opportunities and better manage investment risk. Multi-manager approach: We strive to select best-in-class investment managers from around the world who bring the necessary expertise to each of our portfolios. Tactical asset allocation: We actively monitor economic indicators, market fluctuations and market outlooks and may change the asset mix over time (and within preset guidelines) to take advantage of attractive opportunities or to preserve capital.
- Sun Life Guaranteed Investment Funds (GIFs) – An industry-leading suite of segregated fund contracts that offers the benefits of protection and potential for investment growth. When you invest your money into GIFS, you contribute to a large pool of money invested in stocks, bonds or other securities to grow the value of the entire investment. With segregated fund contracts, you also have maturity and death benefit guarantees, and in some cases, income guarantees for life.
To learn more about RRSPs, please contact your financial advisor.