- Your RRSP room is shown your Notice of assessment
- Your RRSP contribution can reduce your income.
- If you have spare cash available, contribute as much as you can to an RRSP, but within the RRSP room available, income generated inside the RRSP is tax-free and any unused RRSP can be claimed in later years
- CRA allows a non-deductible $2,000 over-contribution. Above $2000 level, the excess is subject to a penalty of 1% per month until the excess is taken out.
- In some cases, consider borrowing funds to contribute to RRSP
- Take out funds from RRSP in low-income years.
- Think about transferring shares from non-registered accounts to RRSP account
- If you are first time buyer, can withdraw up to $25,000 as a loan to buy a home, without reporting it as income. The loan has to be repaid over 15 years starting the second year of withdrawal.
- If you or your spouse enrolls in full time training or post-secondary education, can withdraw up to $20,000 in four-year period. The withdrawal will be repaid over 10 years after the fifth year following the first withdrawal.
- RRSP is most suitable for:
- Current year has high income, and expecting a low-income years (such as taking time off to take care of children or for extended vacation)– claiming a deduction at 50% and withdrawing in year at 20% rate.
- Current year has high income, and planning for retirement years – claiming a deduction at 50% and withdrawing in retiring years when the income is low.
- Self-employed as income may vary a lot year by year – RRSP deductions can be used to smooth our tax on high income year. Drawing out RRSP funds at low income year.
