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RRSP Over Contribution Limit And Carry Forward Rules

Your current year’s RRSP contribution limit is 18% of your previous year’s earned income, to a maximum of $26,230 (2018) plus any unused contribution room carried forward from previous years.

There’s some confusion around the RRSP over contribution limit and RRSP carry forward rules. This post explains both of these rules.

RRSP Over Contribution Limit

You are allowed to over contribute a cumulative lifetime total of $2,000 to your RRSP without incurring a penalty tax. An RRSP over contribution is not deductible from your current year’s income, but the advantage is that you can add extra cash into your RRSP, where it can grow on a tax-deferred basis.

RRSP over contributions can be deducted in a subsequent year when your actual RRSP contribution is less than the maximum allowed.

A penalty tax of 1% per month applies to the amount of an RRSP over contribution exceeding $2,000. If you think you may have over contributed to your RRSP, contact an accountant to determine the steps you need to take.

The calculation of the penalty tax and filing of forms to withdraw the excess amount is not part of the normal personal tax return process.

An RRSP over contribution can be an effective tax strategy; however you are usually better off paying down non tax deductible debt first, like your credit card or mortgage. If you decide to over contribute to your RRSP, work with your accountant or financial advisor to ensure you stay within the allowable limit.

One of the reasons the government allows an RRSP over contribution is to provide you with a cushion against possible errors and unforeseen events, like a pension adjustment (PA).

Consider using your $2,000 RRSP over contribution when you quit working. The earned income you have in your final year of employment will entitle you to an RRSP deduction in the following year.

RRSP Carry Forward Rules

For most Canadians, it’s not always possible to make a full RRSP contribution in any given year. If you don’t contribute the maximum allowable to your RRSP in any year, you can carry the unused portion forward indefinitely.

This means that if you were eligible to contribute $10,000 each year from 2009 to 2019, but you only contributed $5,000 each year, you will be able to contribute an additional $50,000 over and above your annual maximum limit.

If you are expecting a change in your income in the near future that will bump you into a higher tax bracket, it might make sense to delay your RRSP contributions until then. In this case, it’s important to consider the loss of tax-sheltered investment growth by putting off your contributions.

To accumulate RRSP contribution room, you must file an income tax return. If you have earned income for RRSP purposes, but you are not required to file an income tax return, you should consider filing anyway.  While an RRSP may not be a significant consideration at this point, there will likely be a time when you have enough cash to make a contribution and can benefit from the deduction.

If you had low taxable income in 2018 and enough cash to make an RRSP contribution, consider making the contribution before the RRSP deadline but don’t claim the deduction for 2018.

As long as the amount isn’t claimed as a deduction, your unused contribution room remains intact. You can still claim the deduction in a future year, preferably when your taxable income is higher. In the meantime, the investments inside your RRSP will grow on a tax-deferred basis.

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17 Comments

  1. Einstein on February 20, 2012 at 9:03 am

    Cool stuff here. Rich Canadians have it way better than us in the US – the maximums here are $16,500 for a 401K!

    We don’t have that 18% of income cap, either, so maybe it’s for the better. I do like the idea of a carry-forward provision, though, since Americans seem to have this young person aversion to retirement savings. It’s bad enough to pass up on compound growth, but it really hurts when you miss out on making a contribution for any given year alltogether.

  2. Marianne on February 20, 2012 at 10:37 am

    Interesting! I really wasn’t familiar with the over contribution limit at all!

  3. Tom on August 20, 2012 at 7:52 pm

    Does the amount carry-over automatically? or do you have to enter that you didnt make any contribution/under-contributions on your income tax return?

    • Anthony on April 17, 2018 at 6:41 pm

      I too would like to know if unused portions of your RRSP contributions carry over automatically to the nest year and also for how long, forever?

  4. fred on December 26, 2015 at 10:25 pm

    if I have 100,000 of accumulated rrsp room how much would I expect to get back on return if I topped up my contribution, or does it max out at a certain amount

    • Daniel on May 5, 2017 at 11:13 am

      It depends on your marginal tax rate. It’s a deduction from your income. You can contribute the 100,000$ this year, but only claim the deduction for the amount that brings you to the next lower tax bracket, and carry forward the deduction for the following year, etc.

  5. vc on March 4, 2017 at 9:52 pm

    that is very informative thanks, in my case i have $25000 contribution room and I made a contribution of $20000. I m not planing to get salary next but I will have higher income so I was wondering how does it work if i don’t use any of the contributions credit from this year would I over contribute next year , but from what I see here I m safe. Thanks

  6. Margie on April 24, 2017 at 12:17 pm

    I have retired and was given one years salary which went into an RRSP. My only income is T4A, T4P and T4OAS. How do I apply the RRSP moneys? The income tax receipt is dated 2017, even though I purchased it in Nov of 2016 and I was under the impression anything purchased up to February 2017 would be included in my 2016 taxes. Very confusing. I was however issued a receipt of $50.00 to open the account dared 2016.

  7. Daniel on May 5, 2017 at 11:11 am

    Instead of doing what suggested in the quoted text below, you can contribute now and only claim the deduction in a future year. You don’t need to claim the deduction in the year that you made the contribution, you can claim it anytime in the future.
    “If you are expecting a change in your income in the near future that will bump you into a higher tax bracket, it might make sense to delay your RRSP contributions until then. In this case, it’s important to consider the loss of tax-sheltered investment growth by putting off your contributions.”

  8. Mario Guzman on December 18, 2017 at 12:41 pm

    Im making higher income but I started to contribute rrsp from 1995. 18% of my income is more than the maximum limit but when I calculate the contribution I made from 1995 its over to my rrsp limit. Can you give an idea of what amount I should have in my rrsp if I maximized from 1987 up to this year. Thank you

  9. Janet on February 27, 2018 at 11:11 am

    Last year (2016 return), I contributed towards my RRSP and only claimed some of my RRSP contributions against my taxes as I knew I would make more money this year (2017) and wanted to save it. When I got my 2016 assessment, it noted that I had contribution room of $8K for 2017. I also had $7K of contributions from 2016 that I did not deduct. Does that mean I can claim $15K for 2017 or is it still $8K (therefore, using the $7K contributions I carried over plus adding a max of an additional $1K). Thanks for your help. I am worried I have overcontributed for 2017.

  10. Michael on April 8, 2018 at 7:40 am

    If somebody over-contributes by $5,800.00 to an RRSP, to be claimed in the following tax year, what are the odds that you could escape the interest penalty? In other words, avoiding taking out the $5,800.00 on the prescribed CRA form.

  11. emilio on April 26, 2018 at 5:03 am

    In the past income tax years I have overpaid $ 3,900.00.
    I will never be able to use this amount in the future tax years ( 70)
    What are the steps to get back overpayment

  12. Tim Dreher on May 29, 2018 at 7:20 am

    I will be receiving a $200,000 capital gains that does not qualify for an exemption so will have to pay tax on the $100,000, I have $189,000 of unused contribution space, how much can I put into my RRSP in one year? Can I put the whole $100,000 to be able
    to defer the taxes until I retire? One accountant says yes another says no . What is the right answer.

  13. Jamie Plamondon on February 21, 2019 at 4:34 pm

    My unused amount of funds for RRSP is $165,000. Is there an individual maximum I can put into this unused portion in each year before incurring no tax deduction?
    I am thinking of borrowing $100,000 to use some of my unused portion. I have $4000 as well, so total of $104,000 against my income of $125,000. Is this allowed and can I get the full deduction bringing my income down to only $21,000 for the year and getting a refund of $40,000 approximately.

    • Dan Paulson on July 7, 2019 at 8:21 am

      You certainly could do this Jamie, but it may be a better plan to only contribute enough to get your income into the lowest bracket only. FYI “15% on the first $47,630 of taxable income”

      So my target would be exactly $47630 of taxable income for 2019.

      It is a much better tax deduction to avoid contributing against the lowest tax bracket. Remember that when you withdraw and pay tax, you may be paying some tax in a higher bracket.

      The best plan then is to get deductions against the higher tax brackets, but pay tax only in the lowest bracket when you are collecting the income from your RRSP/RIF.

      You can do this in multiple years, until you have used up all of your carry forward contribution room.

      Also remember that you can no longer deduct the interest on borrowed money, when it goes to your RRSP.

  14. Steve on August 8, 2019 at 12:45 am

    You mentioned a lifetime over contribution of $2,000. If you over contribute by $2000 would that form part of the following years contribution limit, i.e. if you would have had 10k in room you’d now only have 8k? Or does over contributing not affect your total RRSP limit and the amount of over contribution is just cumulative over your life, i.e. the only way to recover that “over contribution” limit would be to fill out the paperwork to remove the over contribution?

    Another thing I’m curious about would be the income tax you pay on that over contribution. If you always max out your RRSPs then you would never be able to claim that over contribution against your income. When you withdrew that $2000 would you be paying income tax again since it was never deducted?

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