Retirement Planning
Basic Rules
To help you save for your retirement, an RRSP (or Registered Retirement Savings Plan) offers you two tax advantages:
- Your contributions are deducted from your taxable income.
- Your investment returns are in a tax shelter. Since these returns are entirely reinvested in your plan, your assets will grow more quickly.
How much can you contribute?
Tax laws permit you, for any given year, to contribute an amount equal to 18% of your eligible income from the previous year to your or your spouse's RRSP (see table below of maximum RRSP deduction limit for subsequent years) less the pension adjustment (PA) for the same year. Your employer calculates the PA based on the benefits accumulated in your name in a supplemental pension plan or a DPSP.
| Maximum RRSP Deduction Limit for Subsequent Years |
| Fiscal Year |
Maximum Deduction |
2007 |
$19,000 |
| 2008 |
$20,000 |
| 2009 |
$21,000 |
| 2010 |
$22,000 |
| 2011 |
$22 450 |
You can increase your RRSP contribution by using your unused contribution room from previous years and making a surplus contribution.
This information (annual contribution, unused contribution room and pension adjustment) appears on the maximum RRSP deduction statement that the Canada Revenue Agency (CRA) sends you each year when it receives your income tax return.
You must make your contributions for a single tax year before the end of the first 60 days of the following year.
Maximum RRSP Deduction Statement Example
Taxpayers who filed 2009 income tax returns with the federal government (in the spring of 2010) receive a notice of assessment, like the one shown below, several weeks later indicating their personal information.
The important number is in the first part, in the last line: "RRSP deduction limit for 2010". This is the amount you should contribute before March 1, 2011 to benefit from a deduction in the computation of your taxable income for 2010.
Note that this notice combines all your unused RRSP contribution room since 1991, which can be carried forward indefinitely.
The different pension adjustments (PA, PSPA, PAR), only concern workers who contribute to a private pension plan (also called "pension fund") with their employer. The second part of this notice indicates contributions already paid into an RRSP but not yet deducted because of a requirement ($2,000 in overcontributions) or by choice. This amount can be carried forward and deducted in a subsequent return, up to the maximum for the year in question.
Example of a notice of assessment:
| 2007 RRSP Deduction Limit Statement |
| RRSP deduction limit for 2010 |
$5,100 |
|
| Minus: allowable RRSP contributions deducted in 2009 |
$3,500 |
|
| Unused RRSP deduction limit at the end of 2009 |
|
$1,600 |
| Plus: 18% of 2009 earned income of $40,000 |
$7,200 |
|
| Minus: 2009 pension adjustment |
$4,100 |
$3,100 |
|
|
$4,700 |
| Minus: 2010 net past service pension adjustment |
|
0 |
| Plus: 2010 pension adjustment reversal |
|
0 |
| RRSP deduction limit for 2010 |
|
$4,700 |
| RRSP unused contributions available to carry forward |
$0 |
|
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