Help! I Discovered I’m Over-Contributing To My RRSP

Less than one-quarter of Canadians contribute the maximum to their RRSP each year, but if you’re one of those keen savers you’ll want to pay close attention to your RRSP contribution limit to avoid going over.

A blog reader named John realized he might be pushing his limit due to automatic monthly contributions and a generous employer-match. He sent an email and wanted to know his options for rectifying this situation:

Over-Contributing to RRSP

John: “I discovered that I am over-contributing on my RRSP this year. When I looked up this topic online I only found remedies for when you find out after the fact, i.e. at tax time. But what can I do if I’ve discovered this now?

Does my employer contribution (my employer doubles my contribution) count towards my contribution limit? Obviously I don’t want to give this up.

And, come March 2016, do I have to include my contributions for the first two months on my 2015 tax return, or can I leave these until the 2016 tax year?

If the answer to both is “no”, then I may be okay. But either way what would one have to do to correct this?”

Hi John, thanks for your email. My first question to you would be; do you have any unused RRSP contribution room from prior years?

Your RRSP contribution limit is 18% of your prior year’s earned income (to a maximum of $24,930 in 2015) minus any pension adjustment you receive from being a member of your company pension plan (if applicable), plus any unused RRSP contribution room carried forward from prior years. The amount is printed on your Notice of Assessment from Canada Revenue Agency (CRA), which you can also view online using CRA’s My Account.

Related: Should you make RRSP contributions if you have a pension?

You can contribute more than your limit, up to a $2,000 maximum overage, but anything beyond that is subject to a penalty of 1% per month. Contribute $1,000 more than the limit and pay a penalty of $10 per month, or $120 per year.

The contributions you make in the first 60 days of 2016 must be reported on your 2015 tax return, so no reprieve there. However, while the contribution must be recorded, you don’t have to claim a deduction that year – it can be carried forward to a future year.

While it’s great to take advantage of your employer’s generous offer to double your contributions, note that employer-matching contributions do indeed count towards your RRSP contribution limit.

Bottom line: Check your Notice of Assessment to determine your actual RRSP contribution limit. You can over-contribute by up to $2,000 without being penalized, however you cannot claim a deduction for the excess amount.

If you discover that you have over-contributed make sure to withdraw the excess amount as soon as possible. You’ll have to include the withdrawal as income on your tax return; however – according to H&R Block – you can claim an offsetting deduction as long as you do so within the required time frame and the following conditions are met:

  • You reasonably expected to be able to claim a deduction for the contribution, either in the year you made the contribution or the year before; and
  • You did not make the contribution with the intention of later withdrawing it and deducting the offsetting amount.

You can ask the Canada Revenue Agency (CRA) to certify the amount of the excess contribution using Form T3012A. The financial institution will release the funds without withholding tax with this certified form.

Related: 5 common myths about RRSPs

And if it’s clear that making contributions over the next four months will put you over your RRSP contribution limit then the obvious answer is to halt or adjust your contributions so that you do not exceed the limit and then make sure to modify your monthly contributions next year so that you don’t run into this situation again in the future.

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  1. Big Cajun Man (AW) on November 16, 2015 at 6:00 am

    As you mention, I think I’d like to be in this quandary, although given I have a pension it is easier for it to happen to me given my very high Pension Adjustment. It is always interesting to hear folks with Pensions who then assume they don’t have to save “at all” because they have a pension? Yes, someone has said that to me, I believe the rant I unleashed got me in a little trouble, I stopped giving out advice at work after that.

  2. Tracey H on November 16, 2015 at 6:38 am

    You have a (I assume) typo above. It should be “The contributions you make in the first 60 days of 2015 must be reported on your 2015 tax return”.

    I overcontributed to an RRSP once because I misplaced my Notice of Reassessment and was going by the original Notice of Assessment. Fortunately, the limit was hit in November so I had only 2 months’ penalties to pay. I’d already used the $2000 overcontribution for decades to grow that money free (it works great as long as you don’t overcontribute–just make sure you account for that your final year contributing).

  3. JohnnyStash on November 16, 2015 at 7:12 am

    Tracey – there is no typo – contributions made until Mar 1 of the new year are accounted for in the previous term.

  4. Joanne on February 28, 2017 at 4:09 pm

    If you get a Excess RRSP contribution review letter. Respond to it the best you can and offer a continuity schedule if you have one. If CRA issues a Tax on RRSP Excess Contribution Section 152(7) Assessment mail Notice of Objection T400A within 90 days indicating the assessment does not make sense. Hopefully an CRA appeals officer will help you/accountant understand the numbers. If your accountant/you still does not understand the numbers you will have to electronically file to take it to tax court. Its free for assessments less than $50,000 and the fee is nominal for assessments over $50,000. You do not need a lawyer to go to tax court (just a good read of Section 204 crosschecking each section to the income tax act for relevancy). For me only 15% of Section 204 was reliant. The most understandable document you will receive “the Reply to Notice of Appeal.” From that document you can compare CRA’s records to yours and CRA’s math. I set up a spreadsheet that emulated CRA’s calculations and the clerical errors that fell out were astronomical (your accountant may have to do this for you). Today I finalized a settlement agreement, without a lawyer, through tax court that was a fraction of of the original assessments , saving around $25K

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