Personal Finance

Withdrawing RRSP Overcontribution

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  • Jan 22nd, 2014 12:01 am
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[OP]
Newbie
Jan 19, 2014
3 posts

Withdrawing RRSP Overcontribution

I overcontributed to my RRSP by about $8,000 last month (stupid mistake, I know.) I assume that at the very least I'm going to have to eat the 1% penalty for the month the overcontribution was in there. If I withdraw the money, will it be counted as income this year or last year? What's the best way to avoid having to pay anything beyond the 1% penalty?
5 replies
Sr. Member
User avatar
Mar 13, 2012
858 posts
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Planet Earth
Help yourself with Google.

Easiest answer from here.

Proper answer here.

CRA form here.

You can't mess with the Govt and have to pay or withdraw. Simple as that.
If at first you don't succeed, destroy all evidence that you even tried.
Deal Addict
Jul 15, 2009
1614 posts
697 upvotes
Staalt wrote:
Jan 20th, 2014 5:57 pm
I overcontributed to my RRSP by about $8,000 last month (stupid mistake, I know.) I assume that at the very least I'm going to have to eat the 1% penalty for the month the overcontribution was in there. If I withdraw the money, will it be counted as income this year or last year? What's the best way to avoid having to pay anything beyond the 1% penalty?
Are you sure you still have an overcontribution? On January 1st, 2014, you got new contribution room equal to 18% of your employment income in 2013. If you made $45k or more in employment income, that covers the $8k that you contributed in December. The precise amount of new contribution room will be calculated on your NOA after you file your taxes, but you get that contribution room effective January 1st, even though you don't yet know exactly how much it is.

Plus, since you're allowed to overcontribute $2k without penalty, you only need a 2013 employment income of $34k (which will cover $6k of the December contribution).

Edit: If your company has a pension plan, then your new contribution room will be reduced. In that case, you might not have received very much new contribution room on January 1st.
[OP]
Newbie
Jan 19, 2014
3 posts
bubak wrote:
Jan 20th, 2014 9:28 pm
Are you sure you still have an overcontribution? On January 1st, 2014, you got new contribution room equal to 18% of your employment income in 2013.
I made the contribution in December, though. Can expanded contribution room in January be used to cover a December overcontribution? Also, when I withdraw, since I haven't actually claimed the contribution as a deduction, it will still count as income last year and not this year, right?
Deal Fanatic
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Feb 19, 2010
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Staalt wrote:
Jan 21st, 2014 11:43 am
I made the contribution in December, though. Can expanded contribution room in January be used to cover a December overcontribution? Also, when I withdraw, since I haven't actually claimed the contribution as a deduction, it will still count as income last year and not this year, right?
To the bolded question above, the answer is yes. There's no need to withdraw. You gained new contribution room as of January 1, assuming you had earned income in 2013, which may cover the amount that you contributed (as bubak pointed out).

As you also have an over-contribution limit of $2K, you're probably only over-contributed by $6K in December for which you will pay the penalty for only one month given the new room gained in January.

If you persist in taking the money out now, it's income in 2014, not 2013 but I see no reason why you would take it out.
[OP]
Newbie
Jan 19, 2014
3 posts
Conquistador wrote:
Jan 21st, 2014 2:17 pm
To the bolded question above, the answer is yes. There's no need to withdraw. You gained new contribution room as of January 1, assuming you had earned income in 2013, which may cover the amount that you contributed (as bubak pointed out).
I was already taking the $2,000 grace amount into account when I gave the $8,000 figure, so I still have an overcontribution but it's a lot less than I originally thought (under $1,000.)

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