The rules around RRSP contribution room
As soon as a taxpayer starts to earn income—like employment income, self-employment income, royalties, research grants or net rental income—they accumulate room for their registered retirement savings plan (RRSP). There are no age limits, so a teenager with a part-time job can start to build their RRSP room as long as they file a tax return to report their earned income.
How does RRSP carry forward work?
Your RRSP room carries forward, meaning the amount is cumulative. So, 18% of your earned income for the previous year, up to the current year’s maximum contribution limit, becomes your RRSP room for the year. For 2023, the maximum is $30,780 for taxpayers with at least $171,000 of earned income in 2022. This gets added to any previously unused RRSP room from the past.
RRSP room becomes available retroactive to January 1, 2023, upon filing your 2022 tax return.
If you are a pension plan member, whether it is a defined benefit (DB) or defined contribution (DC) pension, your T4 slip will include a pension adjustment (PA) that will calculate a reduction in your RRSP room for the year. So, your 2022 pension enrollment reduces your 2023 RRSP room. This is done to ensure that a pension plan member does not have an unfair advantage to earn tax deferred retirement income over someone without a pension.
Don’t double count, though
In your case, Lorraine, I want to caution you to make sure your understanding of your RRSP room is accurate. If your 2022 notice of assessment (NOA) says you have $25,000 of available contribution room for 2023, you probably do not have an additional $30,780 of RRSP room. If the NOA in question is for 2021 and shows your 2022 RRSP room, that may be reduced by any RRSP contributions you made in 2022 or by any potential pension enrollment. So, just be sure you are not double counting.
If in doubt, log in to the Canada Revenue Agency (CRA) My Account portal, or call the CRA at 1-800-959-8281 to confirm your 2023 RRSP room.
You have up until March 1, 2024, to contribute to your RRSP for the 2023 tax year. As stated above, when you file your 2022 tax return, you will get the 2023 RRSP room that becomes available back to Jan. 1, 2023.
Interestingly, if you make your 2023 RRSP contribution in early 2023 based on your estimated new RRSP room, even though you cannot deduct it until next year, you may have to claim it on your 2022 tax return. This is because you claim RRSP contributions when made, even if they are not deducted until a future year.
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