Canadians still have time before the RRSP contribution deadline
Tax season is around the corner, and that means the deadline for the Registered Retirement Savings Plan (RRSP) is also drawing near.
The deadline to contribute to your RRSP for the 2025 tax year is March 2, according to the Canada Revenue Agency (CRA). The RRSP is a savings plan that you can set up to which you or your spouse or common-law partner can contribute, and any deductible contributions help reduce your tax.
Having an RRSP is one way to help you be more prepared for the future, but contributing also comes with other benefits. Daily Hive spoke with H&R Block tax expert Yannick Lemay, who explains everything you need to know about the RRSP.
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Why is it important to contribute to your RRSP?
Lemay outlined three main reasons why you should set aside money in your RRSP account:
Saving for retirement — Lemay points out that you won’t pay any income tax on the income you generate in your RRSP account until you withdraw the money.
“You don’t pay income tax on all of the income you generate in your RRSP account until you withdraw the money,” explained Lemay. “By keeping that money in that account, then that money will make more money the next year, and the following year, because you haven’t paid personal taxes on it until you withdraw those contributions later on.”
A bigger tax return — If you contribute before the RRSP deadline, setting cash aside in that account reduces your income and, therefore, your taxable income, states Lemay. And depending on how much you contribute, that means you could receive a bigger tax return.
Access to benefits — By contributing more to your RRSP, you lower your taxable income. If your income was previously too high to qualify for certain benefits and credits, reducing your income through RRSP contributions could make you eligible.
“You can also get more, for example, from the Canada Child Benefit, because those are calculated on your family’s net income as well,” he said.
This means you could get more from the GST credit, Climate Action Incentive payment, Medical Expenses credit, and other credits calculated on your tax return.
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How much can Canadians contribute ahead of the RRSP deadline?
According to Lemay, a simple way to estimate your RRSP contribution limit is to calculate 18 per cent of your income from the previous year. You’ll need to consider your work income or your self-employed income.
Lemay advises checking your contribution limit on the notice of assessment that you receive from the Canada Revenue Agency (CRA) after you file your taxes, and on your CRA My Account. You can also verify the amount by checking out the chart on the CRA website.
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What should you do if you’re enrolled in an employer-sponsored retirement or pension plan?
Lemay says that if you’re enrolled in an employer-sponsored RRSP, where your employer contributes to your retirement fund, it could lower your available contribution limit.
He explained, “Your employer will include this information on your T4 slip, and the CRA will automatically reduce your RRSP contribution limit based on the information your employer provides.”
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Are there carry-forward opportunities to contribute more?
It’s important to keep track of your contributions and make sure you don’t exceed your contribution limit — doing so could cost you.
“If you contribute more than $2,000 over your contribution limit, there are severe penalties,” he warned.
That said, Lemay explains that if you’re contributing less than your maximum RRSP limit, it doesn’t mean you need to deduct the maximum limit this year on your taxes.
He gives the example of someone who contributes $10,000, despite having a higher maximum limit.
“That $10,000 is already in your RRSP account already making money on a tax-deferred basis, so you’re not paying taxes on this income,” he stated. “Or you can choose, for example, to deduct $7,000 on your income on your tax return and keep the deduction of the balance for the following year.”
He noted that it also depends on your tax bracket.
“You might want to keep the $3,000 deduction for a year you’ll be in a higher tax bracket,” he said. “So, you’ll save more money on your contribution.”
Check out tax credits and deductions you may not know you can claim in Canada. Make sure to keep an eye on the key deadlines and be aware of any tax changes this season.
This article was originally published on Feb. 29, 2024. It has since been updated.