RRSP Deadline, Contribution Limit, and Tax Deduction 2024

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The 2024 RRSP deadline is quickly approaching. Since Registered Retirement Savings Plans (RRSP) are arguably the best way to save for your retirement, it’s best for you to understand how it works.

An RRSP is a government-registered account. It was designed to give you a tax break for your contributions and it could potentially lower your taxable income when you eventually withdraw from it. Since RRSPs have a lot of rules, including the RRSP deadline, contribution limit, withdrawal penalties and more, many people often get confused. This RRSP guide will help explain the basics of RRSPs so you can get the most out of your account.

RRSP deadline 2024

The deadline for contributing RRSPs is 60 days after the end of the year. So, that means the RRSP deadline for the 2023 tax year is February 29, 2024. Note that even though the deadline is 2024, you can use any contributions made before February 2024, for your 2023 tax year.

Keep in mind that RRSPs have an age limit. The RRSP deadline is December 31 of the year in which you turn 71. After this point, you have three options:

  1. Take it out in cash as a lump sum
  2. Purchase an annuity
  3. Transfer into an RRIF

RRSP contribution limit

On top of the RRSP deadline, there is also an RRSP contribution limit that you need to be aware of. Your RRSP contribution limit is 18% of the total income you earned the previous year, up to a specific limit set by the CRA- whichever is the lower of the two options. The RRSP deduction limit for the 2022 tax year is $29,210.

If you go over your contribution limit, you will have to pay a penalty, which is one RRSP mistake you want to avoid since the penalty is 1% per month. That said, the CRA does give you a grace amount of $2,000 if you accidentally over contribute.

Keep in mind that you can carry forward any accumulated contribution room after 1991. So, if you are unable to max out your RRSP contribution this year, you won’t lose it. You can make up that difference later. You can find information on any unused contribution room online on your CRA account.

What is an RRSP?

RRSP stands for Registered Retirement Savings Plan. It’s a government-registered account that allows you to contribute a certain amount every year up until the age of 71. The big draw with RRPs is that they are tax-deductible, which makes it an attractive savings vehicle for those planning for their future retirement.

Since an RRSP is designed to be a retirement account, there are penalties for withdrawing from your RRSP early, except under specific circumstances which will be discussed later on in this article.

RRSP tax deduction

As mentioned above, your RRSP is a tax-deductible account which is its big draw. So, what does this mean?

When you contribute to your RRSP, that money will be deducted from your income, which reduces your tax burden. For example, let’s say you made $50,000 this year and you contributed $5,000 to your RRSP. Your contribution would lower your taxable income to $45,000 for the year.

Most people typically have their taxes taken off at the source by their employer. Since your taxable income gets lowered due to RRSP contributions, you’d likely get most of the taxes you already paid back in the form of a tax refund.

Now, keep in mind that an RRSP is not tax-free like your Tax-Free Savings Account. You do have to pay tax eventually. However, any income earned will remain tax-free until it comes time to withdraw the money. At this time, you will likely be retired and have no regular income, so even though you will be taxed on RRSP withdrawals, your tax rates shouldn’t be too high.

How to open an RRSP

Opening an RRSP is easy. You can open one at most financial institutions in Canada, including banks, online banks, and credit unions. Once you have chosen which financial institution you would like to open your RRSP and completed the application process, you can contribute to it.

RRSPs can hold all kinds of investments, including:

You can hire a financial advisor to help you create your portfolio. However, you don’t need to. If you are financially savvy, you can invest yourself through index investing. There are plenty of online DIY platforms for this, and it’s the option with the lowest fees. Obviously, you need to know what you are doing, but this option works well for some people.

If you don’t want to do it yourself, I recommend looking into a robo advisor, which does the work for you at a fraction of the price a financial advisor would charge. I suggest Justwealth if you are looking for a robo advisor. You can read my review here. Anyone who needs a bit more handholding could consider the services of a financial advisor.

*Note that you can move your RRSP to another financial institution later on if you wish. For instructions on how to do that properly, look at this article.

Using your RRSP for the Home Buyer’s Plan

I mentioned earlier that you will be penalized if you withdraw early from your RRSP except for specific circumstances. One of these circumstances is the Home Buyers’ Plan. Here’s how that works.

The Home Buyer’s Plan (HBP) is a government program that allows you to withdraw from your RRSP to buy or build a qualifying home for either yourself or a related person with a disability.

To qualify, you must meet the following requirements:

  • You must be a first-time home buyer
  • You must have a written agreement to buy or build a qualifying home for yourself or a related person with a disability
  • You must be a resident of Canada
  • The qualifying home must be used as a principal residence for yourself or a related person with a disability and the home must be occupied within 1 year after buying or building.

If you meet the program requirements, you can withdraw up to $35,000 from your RRSP for the down payment, tax-free. If you are purchasing with someone else, they can also take advantage of the HBP allowing you a total of $70,000 towards the down payment on the home.

However, the HBP is considered a loan and must be paid back to your RRSP within 15 years. If you don’t repay it, the amount is taxable and you lose the RRSP contribution room permanently.

Tax-Free First Home Savings Account contributions

In 2023, the Tax-Free First Home Savings Account (FHSA) was introduced. This allows first-time homebuyers to contribute up to $8,000 per year with a total contribution room of $40,000 available. Any unused contributions get carried over.

The FHSA can be incredibly handy since contributions lower your taxable income and any capital gains or interest earned within your account are tax-free. You essentially get the benefits of an RRSP and TFSA. With the FHSA, there’s no deadline. You just need to be mindful of the maximum contribution space each year and overall.

Using your RRSP for the Lifelong Learning Plan

Another specific scenario where you can withdraw from your RRSP without penalty is for the Lifelong Learning Plan (LLP). This government program allows you to temporarily withdraw up to $10,000 per year ($20,000 total) from your RRSP to pay for full-time education or training for yourself or a spouse/ common-law partner. It cannot be used for your children. It is similar to the Home Buyers’ Plan in that the money does have to be repaid back into your RRSP. In the case of the LLP, you have 10 years to pay back the funds.

What happens to an RRSP when you die?

One of the biggest questions about RRSPs is what happens to it when you die? Generally, the value of the RRSP needs to be included in the income of the deceased for the tax return of the year of death. However, there are three exemptions in which it can continue to be tax-deferred.

  1. If the beneficiary is the spouse (or common law partner)
  2. If the beneficiary is a financially dependent child or grandchild under 18 years of age
  3. If the beneficiary is a mentally or physically infirm child or grandchild of any age

It’s important to remember your RRSP in your estate planning because it can be subject to taxes and probate fees depending on who the beneficiary is. For example, if you list the estate as the beneficiary then it’s subject to probate fees. But, if you specifically list your adult children, they still have to pay the tax, but no probate fees.

Final thoughts

An RRSP is a smart investment tool Canadians should consider using to help save for their future. Just make sure to take the time to understand how it works because there are a lot of rules to be mindful of such as RRSP deadline, contribution limits and more. It may be a bit intimidating at first, but once you understand the basics, an RRSP will make saving for retirement a breeze.

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

1 Comment

  1. Mike on February 27, 2022 at 9:48 PM

    Overall a verybgood article. However, can you please clarify the language below. It seems s bit confusing as there may be typo? Will appreciate your response via email. Bottom line is I am trying to understand that if I contribute in rrsp before or on March 1 2022, can I deduct that amount either in 2021 tax return or if there is some excess can I use the remainder for 2022 tax return? I mean can I use first 60 day contributions either is previous years or current year tax return. Thanks

    “RRSP deadline 2022
    The deadline for contributing RRSPs is 60 days after the end of the year. So, that means the RRSP deadline for 2022 is March 1st. Note that any even though the deadline in 2022, you can use any contributions made before March 1, 2022, for your 2021 or 2022 tax year.”

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