A Registered Retirement Savings Plan (RRSP) is one of the best tools Canadians have for saving for retirement. RRSPs provide attractive tax advantages that help grow your nest egg.

However, to prevent overuse, the Canada Revenue Agency (CRA) sets limits on how much you can contribute each year. Read on to learn everything you need to know about RRSP contribution limits.

What is the RRSP Contribution Limit?

The CRA sets a maximum RRSP contribution limit each year. You can contribute this amount across all your RRSP accounts for the year without facing a penalty tax.

For the 2024 tax year, the standard RRSP contribution limit is $31,560.

It’s important to note that this limit can be higher or lower for each individual based on factors explained in the next section. However, the CRA set $31,560 as the baseline 2024 limit.

The contribution limit changes annually. Here are the RRSP contribution limits for recent tax years:

As you can see, the limit typically increases slightly each year. This accounts for inflation and gradual salary growth over time.

The CRA sets the contribution limit to control the tax-deferred benefits of RRSPs. Since contributions are tax-deductible, higher limits would allow some taxpayers to greatly reduce their taxable income.

Source: https://www.wealthsimple.com/en-ca/learn/rrsp-contribution-deduction-limit#what_is_the_rrsp_contribution_limit

How is the RRSP Contribution Limit Calculated?

The CRA calculates your personal RRSP contribution limit based on the following factors:

• Unused RRSP contribution room carried forward from previous years – Any unused contribution room you have from earlier years gets added to your limit for 2024. This unused room carries forward indefinitely.
• 18% of your 2023 earned income – The CRA takes 18% of the income you earned in 2023, up to the $31,560 maximum limit for 2024. For example, if you earned $50,000 in 2023, 18% of that is $9,000.
• Pension adjustment – If you have a work pension plan, it reduces your 2024 RRSP room. Your pension adjustment can be found on your 2023 T4 slip.

For example, let’s say your unused contribution room carried over from 2023 is $2,000. You earned $55,000 in 2023 and have a pension adjustment of $1,000.

Your 2024 RRSP limit would be:

• Unused room: $2,000
• 18% of $55,000 income: $9,900
• Less pension adjustment: -$1,000
• Total 2024 Limit = $10,900

Read more: Canada Pension Plan

Can I Contribute More Than The Limit to My RRSP?

You can contribute more than your 2024 RRSP deduction limit, but you’ll face penalties on any overcontributions above $2,000.

The CRA charges a tax of 1% per month on excess contributions. If you leave the overcontribution in your RRSP, this tax continues to compound until you withdraw the amount or until the CRA deems the overcontribution “eliminated.”

It’s best to avoid overcontributing to your RRSPs. However, if you do exceed your 2024 limit, you have a few options:

• Withdraw the overcontribution amount.
• Complete Form T1-OVP to have the overcontribution count towards your 2025 limit
• Complete Schedule 7 to carry forward the excess contribution amount to deduct in a future year

What Happens If You Overcontribute to Your RRSP?

Exceeding your RRSP contribution limit can trigger penalties and taxes from the CRA. Here is what you need to know:

• You can overcontribute up to $2,000 without penalty as a buffer.
• Any overcontributions above $2,000 are taxed at a rate of 1% per month.
• To withdraw an overcontribution, you need to complete CRA Form T3012A. This prevents withholding tax on the withdrawal.
• You can also file Schedule 7 with your taxes to have the overcontribution deducted in future years.
• Overcontributions can be carried forward indefinitely until your RRSP deduction limit absorbs them.

It is best to avoid overcontributing if possible. Here are some strategies to prevent exceeding your limit:

• Check your limit on your CRA Notice of Assessment or online CRA account.
• If contributing close to your limit, contribute in smaller increments over time rather than one large lump sum.
• If unsure, contribute less than your maximum limit. The unused room carries forward.
• Withdraw any unintended overcontributions as soon as possible before penalties accrue.

What is the Deadline for RRSP Contributions?

To make an RRSP contribution that you can deduct from your 2024 taxes, you must deposit the funds by March 2, 2025.

That is the deadline for contributions you want to apply to the 2024 tax year. However, you can make RRSP contributions anytime during the calendar year.

Some additional points on contribution deadlines:

• For the first 60 days of 2025, you can still make contributions that you can apply to the 2024 tax year. This provides some flexibility if you miss the March 2 deadline.
• You can carry forward any unused deduction room indefinitely to future tax years. So you don’t lose contribution room if you don’t max out your limit every year.
• Your deadline for making any RRSP contributions is December 31, when you turn 71. At that point, RRSPs must be converted to Registered Retirement Income Funds (RRIFs) or annuities.

How Much Should You Contribute to Your RRSP Each Year?

While maximizing your RRSP contributions for tax deductions is tempting, contributing the full limit each year isn’t always the best strategy. Here are some factors to consider when deciding on contribution amounts:

• Current marginal tax rate – If your rate is lower now than in retirement, prioritize TFSA contributions first.
• Expected future income and tax rates – If you anticipate a major raise next year, you may want to delay contributions until a deduction is worth more.
• Unforeseen financial needs – Ensure you have sufficient cash flow and emergency savings before prioritizing RRSPs.
• Time horizon – The longer your investment time frame before withdrawals, the greater the impact of tax-deferred compound growth.
• RRSP investment performance – Consider redirecting some savings to your TFSA if RRSP investments underperform.

An experienced financial advisor can help analyze these kinds of factors and develop a personalized RRSP contribution plan tailored to your financial situation.

Key Takeaways on RRSP Contribution Limits

• The CRA sets a maximum contribution limit of $31,560 for 2024.
• Your personal 2024 limit is based on unused room, 2023 income, and pension adjustments.
• You can contribute until age 71, and the unused room will continue indefinitely.
• Overcontributions over $2,000 face a 1% monthly tax. Avoid exceeding your limit.
• Timed RRSP contributions can maximize tax savings over your career.

FAQs on RRSP contribution limits in Canada