How to determine the RRSP deduction limit

rdx wrote: ↑ Let's say my CRA account currently shows 2022 RRSP deduction limit: $10K, and I didn't contribute anything to RRSP in 2022. Does it mean I can contribute up to $10K to my RRSP account now before 2022 tax return deadline on April 30 ? I have the pension plan

Yes, you can contribute the full $10K. Don't worry about the 2022 pension adjustment, it will be used for your 2023 limit calculation.
You can see that by examining your 2021 Notice of Assessment: the formula takes 2021 remaining RRSP space, then subtracts 2021 pension adjustment, among other things, to calculate 2022 contribution room.

Edit: this will be the amount you can contribute by March 1, 2023 latest, to claim on your 2022 return. The tax return deadline you mention has no significance here. You can likely contribute a larger amount anytime in 2023 if it's for 2023 tax year instead, but that one is limited by the 2023 contribution room which you don't know yet.

yvrbanker wrote: ↑ Yes, you can contribute the full $10K. Don't worry about the 2022 pension adjustment, it will be used for your 2023 limit calculation.
You can see that by examining your 2021 Notice of Assessment: the formula takes 2021 remaining RRSP space, then subtracts 2021 pension adjustment, among other things, to calculate 2022 contribution room.

Edit: this will be the amount you can contribute by March 1, 2023 latest, to claim on your 2022 return. The tax return deadline you mention has no significance here. You can likely contribute a larger amount anytime in 2023 if it's for 2023 tax year instead, but that one is limited by the 2023 contribution room which you don't know yet.

Thank you

rdx wrote: ↑ I understand the RRSP and TFSA limits shown on my CRA account online might not necessarily reflect the most updated amounts that I can contribute.

For TSFA, it is easier to figure out as I know $88,000 would be the maximum contrition including the amount for 2023. So, I just need to check the total of all my TFSA accounts, and see what is remaining room from $88K.

However, I found RRSP is a bit confusing. Let's say my tax return is up to date (i.e. all prior years tax return have been filed, settled and refund has been received. Nothing is outstanding). Let's say my CRA account currently shows 2022 RRSP deduction limit: $10K, and I didn't contribute anything to RRSP in 2022. Does it mean I can contribute up to $10K to my RRSP account now before 2022 tax return deadline on April 30 ? I have the pension plan with my company, does it mean I will need to wait for the 2022 tax filing for pension adjustment ? Or 2022 pension adjustment will only impact my RRSP room for next year ?

I am always worried about RRSP contribution if I over-contribute......

Thanks in advance for any help and clarification.

Not sure if I'm understanding you right, but I don't think you know how TFSA contribution room works either. Your total of all your TFSA accounts has no relevance on your remaining room, whether it be $10k or $500k. If your TFSA balance is $80k it doesn't mean you only have $8k contribution room if that's what you think. Check this thread for an explanation of how TFSA contribution room is calculated https://forums.redflagdeals.com/planning-maxing-tfsa-contribution-2023-safe-withdraw-interest-earned-jan-1-year-tfsa-2593032/#p37104416

RRSP deduction and contribution are different things. You can contribute to your RRSP but not deduct it the same tax year, and instead carry it forward indefinitely to deduct in a future tax year. So the $10k deduction limit might not be the same as your contribution limit. It could be possible you've contributed in the past but not deducted them on your taxes.

Your Notice of Assessment for tax year 2021 found on the CRA account online will tell you exactly how much contribution room you have for 2022. This is the amount that you can personally contribute to an RRSP. Any company pension plan that takes away from your RRSP contribution room will be in your 2021 T4 and is already taken into calculation as "pension adjustment" in your NOA so you can't over contribute.

As well you only have until end of Feb to contribute to your RRSP in order to deduct for the 2022 tax year. Any contributions March 1 and after you will have to wait until 2024 to claim on your 2023 tax return.

Sorry for the confusion regarding what I said about TFSA. I meant TFSA available room is between the total allowed and what I have contributed to the TFSA accounts (not the balance in my TFSA accounts).

Anyway, I have a question on the RRSP, I heard people said I don't necessarily need to use up all RRSP room if I assume the salary will go up significantly (that's the case for me with big increase in 2023). And I can just buy the amount for the tax year (e.g. 2022) to reduce my tax bracket. There are tax brackets for provincial tax, federal tax. How and what tax brackets' rates I should check ? Thanks

CanadianConsumerYEG wrote: ↑ Not sure if I'm understanding you right, but I don't think you know how TFSA contribution room works either. Your total of all your TFSA accounts has no relevance on your remaining room, whether it be $10k or $500k. If your TFSA balance is $80k it doesn't mean you only have $8k contribution room if that's what you think. Check this thread for an explanation of how TFSA contribution room is calculated https://forums.redflagdeals.com/planning-maxing-tfsa-contribution-2023-safe-withdraw-interest-earned-jan-1-year-tfsa-2593032/#p37104416

RRSP deduction and contribution are different things. You can contribute to your RRSP but not deduct it the same tax year, and instead carry it forward indefinitely to deduct in a future tax year. So the $10k deduction limit might not be the same as your contribution limit. It could be possible you've contributed in the past but not deducted them on your taxes.

Your Notice of Assessment for tax year 2021 found on the CRA account online will tell you exactly how much contribution room you have for 2022. This is the amount that you can personally contribute to an RRSP. Any company pension plan that takes away from your RRSP contribution room will be in your 2021 T4 and is already taken into calculation as "pension adjustment" in your NOA so you can't over contribute.

As well you only have until end of Feb to contribute to your RRSP in order to deduct for the 2022 tax year. Any contributions March 1 and after you will have to wait until 2024 to claim on your 2023 tax return.

CanadianConsumerYEG wrote: ↑Any contributions March 1 and after you will have to wait until 2024 to claim on your 2023 tax return.

March 1st, 2023 is still good actually to claim for 2022 RRSP contribution. Not that I endorse any last-moment contributions.

The rule is "first 60 days of the year", which makes the last day Feb 29th for leap years, and March 1st otherwise. Or a day/two later when the 60th day is Sunday/Saturday.

rdx wrote: ↑ Sorry for the confusion regarding what I said about TFSA. I meant TFSA available room is between the total allowed and what I have contributed to the TFSA accounts (not the balance in my TFSA accounts).

Anyway, I have a question on the RRSP, I heard people said I don't necessarily need to use up all RRSP room if I assume the salary will go up significantly (that's the case for me with big increase in 2023). And I can just buy the amount for the tax year (e.g. 2022) to reduce my tax bracket. There are tax brackets for provincial tax, federal tax. How and what tax brackets' rates I should check ? Thanks

So the whole "salary going up" is related to contribution vs deduction. Not sure what you mean by "buy the amount". I'll just explain as follows;

You can contribute (AKA your "contribution") to your RRSP anytime you want and buy stocks, ETFs, HISA, GIC, etc up to your contribution limit.

And you will tell the CRA when you do your taxes that you've contributed that amount for record keeping sake.

However, you don't need to necessarily deduct it from your taxes the same tax year for the reason you stated (expecting a raise in 2023). You can deduct it any future year, "carrying it forward", to maximize your tax return.

You will look at both provincial and federal tax brackets combined. https://www.taxtips.ca/taxrates/on.htm this is for Ontario for example.

Let's say you made $55k in 2022, putting you in the 29.65% tax bracket, and contributed $1000 to your RRSP. If you deduct that $1000 from your taxes this Spring, you will get a refund of $297. However, you know for sure you're getting a raise to $120k in 2023 and you do (it will put you in the 43.41% tax bracket). If you deduct that $1k in 2024 for the 2023 tax year, you'll get $434 tax refund instead.

This is a very simplified explanation, you also need to consider your employer RRSP contributions as well as your tax bracket and how much of your deduction is in each bracket, to maximize your returns. Also if it's even worth deducting at a future date vs deducting now and putting that money in the market, aka opportunity cost.

Thanks again. Actually, my CRA account currently shows I have $28K room for RRSP. I didn't contribute anything to my RRSP account in the whole 2022 (I assume the CRA amount reflects any transactions before Jan 1, 2022). I do have a pension plan with my company, but I assume if there is any RRSP room reduction/adjustment from it, it should already been reflected on my CRA account (please correct me if I am wrong). I am concerned/nervous about my RRSP contribution is because I changed job 3 years ago and there was a change in the previous company's pension plan, somehow there was a surplus in the account that they had to send money back to me. I thought I had RRSP room and told the pension admin company to transfer the surplus to my RRSP account. It ended up overcontributed my RRSP, and took me a couple of tax seasons and some minor penalty to settle my tax return..... Thus, I am so nervous now touching my RRSP contribution again...... Anyway, long story short, does it mean I can actually contribute up to $28K to RRSP by March 1 and claim all deduction to my 2022 tax return ? I think I am still confused with the contribution and deduction amount. If I contribute over $28K to my RRSP account but only claim deduction of $28K, would I still be ok ?

Sorry for so many questions. Thanks again for your help. Imagine I am still trying to figure out the amount to contribute now. After it is settled, I still need to decide what to invest...... I guess I should just buy more of ETFs as I did try buying stocks in the past, most of them are at the loss positions except Enbridge is growing and earning decent dividends. Honestly, I have been thinking to just hire a financial planner for a paid service , just don't know where to find a good and reliable one.....

CanadianConsumerYEG wrote: ↑ So the whole "salary going up" is related to contribution vs deduction. Not sure what you mean by "buy the amount". I'll just explain as follows;

You can contribute (AKA your "contribution") to your RRSP anytime you want and buy stocks, ETFs, HISA, GIC, etc up to your contribution limit.

And you will tell the CRA when you do your taxes that you've contributed that amount for record keeping sake.

However, you don't need to necessarily deduct it from your taxes the same tax year for the reason you stated (expecting a raise in 2023). You can deduct it any future year, "carrying it forward", to maximize your tax return.

You will look at both provincial and federal tax brackets combined. https://www.taxtips.ca/taxrates/on.htm this is for Ontario for example.

Let's say you made $55k in 2022, putting you in the 29.65% tax bracket, and contributed $1000 to your RRSP. If you deduct that $1000 from your taxes this Spring, you will get a refund of $297. However, you know for sure you're getting a raise to $120k in 2023 and you do (it will put you in the 43.41% tax bracket). If you deduct that $1k in 2024 for the 2023 tax year, you'll get $434 tax refund instead.

This is a very simplified explanation, you also need to consider your employer RRSP contributions as well as your tax bracket and how much of your deduction is in each bracket, to maximize your returns. Also if it's even worth deducting at a future date vs deducting now and putting that money in the market, aka opportunity cost.

rdx wrote: ↑ Thanks again. Actually, my CRA account currently shows I have $28K room for RRSP. I didn't contribute anything to my RRSP account in the whole 2022 (I assume the CRA amount reflects any transactions before Jan 1, 2022). I do have a pension plan with my company, but I assume if there is any RRSP room reduction/adjustment from it, it should already been reflected on my CRA account (please correct me if I am wrong). I am concerned/nervous about my RRSP contribution is because I changed job 3 years ago and there was a change in the previous company's pension plan, somehow there was a surplus in the account that they had to send money back to me. I thought I had RRSP room and told the pension admin company to transfer the surplus to my RRSP account. It ended up overcontributed my RRSP, and took me a couple of tax seasons and some minor penalty to settle my tax return..... Thus, I am so nervous now touching my RRSP contribution again...... Anyway, long story short, does it mean I can actually contribute up to $28K to RRSP by March 1 and claim all deduction to my 2022 tax return ? I think I am still confused with the contribution and deduction amount. If I contribute over $28K to my RRSP account but only claim deduction of $28K, would I still be ok ?

Sorry for so many questions. Thanks again for your help. Imagine I am still trying to figure out the amount to contribute now. After it is settled, I still need to decide what to invest...... I guess I should just buy more of ETFs as I did try buying stocks in the past, most of them are at the loss positions except Enbridge is growing and earning decent dividends. Honestly, I have been thinking to just hire a financial planner for a paid service , just don't know where to find a good and reliable one.....

If it says you can contribute $28k in your 2021 NOA, then that is what you can contribute to your personal RRSP without fear of over contribution. All 2021 employer RRSP contributions are already taken into account (You can see this in your 2021 NOA, "Minus: 2021 pension adjustment")

There is no need to worry about your 2022 employer contributions for now, that will be calculated when you file your 2022 taxes and you will know what amount you've earned for your RRSP that you can deposit during March 2023 - Feb 2024 for 2023, in your 2022 NOA.

Just to reiterate employer contributions during 2022 have no affect on your 2022 contribution limit.

So yes you can contribute all $28k to your RRSP by March 1 and deduct them all for your 2022 return. But that might not be wise because a portion of that $28k could possibly be deducted at a lower tax bracket depending on your income, meaning you'll get less return per dollar.

You can't contribute more than your contribution amount. " If I contribute over $28K to my RRSP account but only claim deduction of $28K" will result in you being penalized. CRA however does give you a $2k over contribution leeway for RRSPs.

Have you looked into your 2021 NOA? That is all you need to look for to find your contribution limit and unused deductions from past tax years (if there are any). Deduction limit by itself is kind of useless information.

nowhere2010 wrote: ↑ just my 2 cents. As far as I know (with a limited experience/knowledge), try to have stocks/etfs with Canadian dividends outside RRSP for dividend tax credit, etc. and better with non-registered account.

I have seen similar advice to yours elsewhere about stocks/efts are better invested outside the RRSP for tax efficiency. but I'm curious what you or others are buying for investments in your RRSPs then?
should most of it just be in bonds/bond etfs in RRSPs? US stocks?

drey wrote: ↑I'm curious what you or others are buying for investments in your RRSPs then?
should most of it just be in bonds/bond etfs in RRSPs? US stocks?

Yes, US (or any international) stocks, bond / bond ETFs, GICs, HISA.

However, your primary consideration should be the overall portfolio allocation. Don't let it be derailed by the relative sizes of your RRSP/non-registered.
E.g. it can be right to be 100% in stocks for certain investors, in which case it makes no sense to put anything but stocks in RRSP. If the investor only has Canadian stocks in non-registered and TFSA, it does not really matter tax-wise if RRSP is used for Canadian or US stocks or a mix. So if the investor believes it's better to be in Canadian stocks, no problem doing it in RRSP.