Personal Finance

RRSP over contribution

  • Last Updated:
  • Apr 20th, 2021 8:41 pm
[OP]
Deal Guru
Dec 5, 2006
10651 posts
5655 upvotes
Markham
lmcjipo wrote: I know about credit cards from having/using them since my early twenties as well as reading RedFlagDeals on new credit card products. For example, I would never have known that Canadians were eligible for a TD Bank NA Visa without RedFlagDeals and would have continued to use my TD Canada Trust US dollar Visa which offers no points and very limited benefits.

In terms of personal finance, I studied this part-time at the same time as I was going to university thinking that I might become a financial planner/advisor but in the end, for personal reasons, my career choice dealt with my university studies (computers) for a career in IT. However, I still like to keep myself informed about the changes in personal finance (since when I took my personal finance/investing course(s), there was no such thing as TFSA).
Thanks
I think personal finance should be mandatory in education
Deal Addict
Sep 14, 2012
1844 posts
1323 upvotes
Montreal, QC
smartie wrote: Thanks
I think personal finance should be mandatory in education
I agree with you 100%
Sr. Member
Oct 14, 2012
712 posts
447 upvotes
Woodstock
Make sure that your RRSP contributions and deductions are properly reported on Schedule 7. You want to report everything you contributed. You want to deduct the most you are allowed for 2020. And you want to carry-forward as unused RRSP deduction amount the excess (maybe $6000 based on what you said about "over" by 6000.)

It's very important to report that you contributed it, even though you cannot use the deduction yet. Otherwise it can cause problems with a mismatch between what you reported contributing and what the bank tells the CRA you contributed.

https://www.canada.ca/content/dam/cra-a ... s7-20e.pdf
[OP]
Deal Guru
Dec 5, 2006
10651 posts
5655 upvotes
Markham
BetCrooks wrote: Make sure that your RRSP contributions and deductions are properly reported on Schedule 7. You want to report everything you contributed. You want to deduct the most you are allowed for 2020. And you want to carry-forward as unused RRSP deduction amount the excess (maybe $6000 based on what you said about "over" by 6000.)

It's very important to report that you contributed it, even though you cannot use the deduction yet. Otherwise it can cause problems with a mismatch between what you reported contributing and what the bank tells the CRA you contributed.

https://www.canada.ca/content/dam/cra-a ... s7-20e.pdf
Thanks

Definitely will properly report.

I was just confused whether I need fill out T1-OVP form
[OP]
Deal Guru
Dec 5, 2006
10651 posts
5655 upvotes
Markham
Started dialing CRA number at 8:20 and got phone pick up at 9:05(surprised no waiting time).

Yes you guys are right, no need fill out T1-OVP, just next year have to remember deduct this 6000 from RSP

Thanks you all!
Member
User avatar
Apr 5, 2006
445 posts
29 upvotes
Toronto
BetCrooks wrote: Make sure that your RRSP contributions and deductions are properly reported on Schedule 7. You want to report everything you contributed. You want to deduct the most you are allowed for 2020. And you want to carry-forward as unused RRSP deduction amount the excess (maybe $6000 based on what you said about "over" by 6000.)

It's very important to report that you contributed it, even though you cannot use the deduction yet. Otherwise it can cause problems with a mismatch between what you reported contributing and what the bank tells the CRA you contributed.



https://www.canada.ca/content/dam/cra-a ... s7-20e.pdf

Is there any limit to what you can contribute to your RRSP if you make sure to only deduct what is permitted within your limit and carry forward to the following year the overage?
Deal Addict
Oct 24, 2010
1992 posts
1781 upvotes
Ottawa
BetCrooks wrote: Make sure that your RRSP contributions and deductions are properly reported on Schedule 7. You want to report everything you contributed. You want to deduct the most you are allowed for 2020. And you want to carry-forward as unused RRSP deduction amount the excess (maybe $6000 based on what you said about "over" by 6000.)

It's very important to report that you contributed it, even though you cannot use the deduction yet. Otherwise it can cause problems with a mismatch between what you reported contributing and what the bank tells the CRA you contributed.

https://www.canada.ca/content/dam/cra-a ... s7-20e.pdf
Don't confuse contributions and deductions.

You need to report all contributions, but that doesn't mean you need to claim all contributions as deductions. You can carry forward as little or as much of the RRSP contributions as you want to use as a deduction in future years.

I maxed out my RRSP contributions in 2020.
I had 5 figures of moving expenses to claim in 2020. These cannot be carried forward, and ended up dropping my marginal tax rate.
I carried forward all of my RRSP deductions to use next year, when my marginal tax rate will be 12% higher.
[OP]
Deal Guru
Dec 5, 2006
10651 posts
5655 upvotes
Markham
Dynatos wrote: Don't confuse contributions and deductions.

You need to report all contributions, but that doesn't mean you need to claim all contributions as deductions. You can carry forward as little or as much of the RRSP contributions as you want to use as a deduction in future years.

I maxed out my RRSP contributions in 2020.
I had 5 figures of moving expenses to claim in 2020. These cannot be carried forward, and ended up dropping my marginal tax rate.
I carried forward all of my RRSP deductions to use next year, when my marginal tax rate will be 12% higher.
hypothetically speaking, could one contribute next 10 years RRSP and deduct certain amount each year?
Deal Addict
Oct 24, 2010
1992 posts
1781 upvotes
Ottawa
smartie wrote: hypothetically speaking, could one contribute next 10 years RRSP and deduct certain amount each year?
You can't contribute more than what you have available in contribution room for any given year.

If your 2020 NoA days your contribution room for 2021 is $10k, you can only contribute up to $10k in 2021. If you contribute in excess of that $10k, you could face an overcontribution penalty.

You can't assume you'll accumulate $10k/year of contribution room for the next 10 years and preemptively contribute $100k to an RRSP. You need to have available contribution room.

If you have $100k in contribution room available according to your NoA, then sure, you can hypothetically contribute $100k now, report it on the tax filing for the year contributed, and defer using it as a deduction to future years.

But you have to decide if that approach works for your individual situation. What if you're laid off in 2 years? Suddenly the marginal tax benefit of having contributed that $100k is voided or delayed. You might have been better off investing inside a TFSA or even an unregistered account.

Again, it depends on your financial situation, marginal tax rate, employment, etc, but in that type of situation and assuming you're in a higher tax bracket and don't expect your marginal tax rate to increase between now and retirement, and subsequently decrease in retirement, you'd probably benefit more from contributing enough to your RRSP to just reduce your marginal tax rate to the next lower bracket, and put the rest in a TFSA if you have available room.

The best approach is really dependent on a lot of factors, though and frankly very individualized.
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User avatar
Dec 24, 2007
1563 posts
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BC
HammerTime wrote: Is there any limit to what you can contribute to your RRSP if you make sure to only deduct what is permitted within your limit and carry forward to the following year the overage?
There is a maximum of excess contribution of Available Contribution Room that is shown on your Notice of Assessment plus $2000, otherwise you'll be penalized 1% a month on the amounts that are over.

Eg. if the Available Contribution Room for 2020 shows $4,000, then you can make additional RRSP contributions up to $6,000 in 2020. Any amount in excess will be penalized. The amount shown as "Available Contribution Room for 2020" does not include the $2000 cushion as it is meant to allow for errors when calculating your earned income.
Sr. Member
Oct 14, 2012
712 posts
447 upvotes
Woodstock
Some people appear to not have not read the OP question. He/She contributed in Jan 1 - March 1 2021 more than they were allowed to contribute for 2020, even allowing for the allowable $2000 over-contribution that the CRA does not penalize. Because He/She contributed in Jan 1 - March 1 2021 however, they are not in penalty provided they will earn new contribution room for the 2021 tax year which is greater or equal to what they contributed in error in Jan 1-March 31. They must report the contribution this spring, but they are not permitted to claim the deduction above their 2020 deduction limit. In 2021 they must earn more contribution room, or the penalty will be applied dating back to when they made the over-contribution, at a rate of 1% per month, and the CRA can also charge income tax on any earnings/capital gains/distributions/dividends that over-contribution has made since it was contributed.

So no, you cannot contribute in advance without penalty. The only thing that accidentally saved this person, is they made the over-contribution in the 3 months that can be claimed for either the previous or the current year.

(The tax benefit of claiming the deduction can always be deferred. But contributions must always be reported when they are made: and over-contributions generally lead to a penalty and a loss of "tax free" benefit for the over-contributions.)

RRSPs have been around for a long time. Lots of people have tried lots of strategies to use them "creatively". The government has gradually blocked these schemes.

If you read through Schedule 7 https://www.canada.ca/content/dam/cra-a ... s7-20e.pdf it's actually pretty clear how it works.
Sr. Member
Jan 30, 2017
612 posts
96 upvotes
BetCrooks wrote: Some people appear to not have not read the OP question. He/She contributed in Jan 1 - March 1 2021 more than they were allowed to contribute for 2020, even allowing for the allowable $2000 over-contribution that the CRA does not penalize. Because He/She contributed in Jan 1 - March 1 2021 however, they are not in penalty provided they will earn new contribution room for the 2021 tax year which is greater or equal to what they contributed in error in Jan 1-March 31. They must report the contribution this spring, but they are not permitted to claim the deduction above their 2020 deduction limit. In 2021 they must earn more contribution room, or the penalty will be applied dating back to when they made the over-contribution, at a rate of 1% per month, and the CRA can also charge income tax on any earnings/capital gains/distributions/dividends that over-contribution has made since it was contributed.

So no, you cannot contribute in advance without penalty. The only thing that accidentally saved this person, is they made the over-contribution in the 3 months that can be claimed for either the previous or the current year.

(The tax benefit of claiming the deduction can always be deferred. But contributions must always be reported when they are made: and over-contributions generally lead to a penalty and a loss of "tax free" benefit for the over-contributions.)

RRSPs have been around for a long time. Lots of people have tried lots of strategies to use them "creatively". The government has gradually blocked these schemes.

If you read through Schedule 7 https://www.canada.ca/content/dam/cra-a ... s7-20e.pdf it's actually pretty clear how it works.
Hi there

I did the same thing as OP

I have 10k in unused contributions going into 2020 tax year

In feb 23 I put money into my rrsp and it made me over

My contribution limit was 33k and I ended up putting 49k. So 16k over

28k in mar - dec 2020 and 21 k between Jan -mar 21 (21k was paid on feb 22)

I calculated my room for 2021 and it’s only 6k (due to govt pension)

Thus, I am going to withdraw 10k (16k over contribution - 6k 2021 room)

But since I get 2k over contribution, I will only withdraw 8k

I have to withdraw 8k regardless what happens but can you tell me what I have to pay cra please?

I believe it would feb 23-april 23 ( 2 months)

So option A

8000 x .01 = 80 times 2 months = 160

OptionB

16000 x .01 = 160 x 2 = 320

Does this look correct? Does unused contributions have any affect?

Also I will take your advice on how to write the letter for relief

Thanks

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