We’ve heard much about the Trudeau Liberal government’s rollback of Tax-Free Savings Account contribution limits. We’ve haven’t heard so much about Registered Retirement Savings Plans (RRSPs). And that’s a good thing. Thankfully, the RRSP rules are one thing the government hasn’t changed. But don’t neglect your RRSP. It’s still one of the best tax shelters we have, and a great way to save for retirement. So with RRSP season now upon us, here’s a refresher on how much you can contribute, and a summary of qualified investments.
First off, the contribution limits to RRSPs were not changed by the incoming Liberal government. Only the $10,000 TFSA contribution limit for 2015 has been rolled back to $5,500 for 2016 and subsequent years.
Your RRSP contribution limits for the year appear on your most recent Notice of Assessment from the Canada Revenue Agency. For the 2015 tax year, you have until Feb. 29, 2016, to make a contribution to your RRSP, provided you were not over the age of 71 in 2015.
Your maximum contribution to an RRSP is calculated as the lesser of 1) 18% of your earned income from the prior year, or 2) the maximum contribution limit for the tax year, or 3) the limit after deducting company pension plan contributions. “Earned income” includes your salary, but may also include alimony payments and rental income, but not investment income.
The maximum contribution limit for 2015 was set at $24,930. It increased to $25,370 for 2016.
Carry forward contribution room
Unlike a TFSA, a contribution to an RRSP gives you a tax deduction for the year of the contribution. This may reduce your overall tax bill, or even result in a refund.
Many people are unable to make the maximum RRSP contribution in a given year. If so, the rules let you carry forward the missed contribution indefinitely as extra contribution room for future years. Your unused contribution limit is also shown on your CRA Notice of Assessment.
The carry-forward feature may be especially useful for those who expect to be in a higher tax bracket in future years.
RRSPs may hold a wide variety of investments, including exchange-traded funds. Here’s a quick list of what the Canada Revenue Agency says are qualified RRSP investments. For more details, check the CRA website.
- Exchange-listed securities
- Exchange-traded funds (ETFs)
- Mutual funds
- Money or cash deposits
Other qualified investments include annuities, mortgages, certain shares of small business corporations and venture capital corporations. You may also put money into investment grade gold and silver bullion, coins, and certificates.