Personal Finance

RRSP overcontribution - how to resolve?

  • Last Updated:
  • Feb 23rd, 2020 4:45 pm
[OP]
Member
Mar 20, 2018
262 posts
165 upvotes

RRSP overcontribution - how to resolve?

Dear RFDers,

Have any of you had to resolve overcontributions to your RRSPs? I would be grateful if you could share your experiences.

Here is what happened:

1) I contributed amount X$ that was within my RRSP contribution room for 2019 + 2000$ buffer in early 2019.
2) Later, I realized that I still have some room so I made an additional contribution (December 2019). I figured out that I made an error in my calculations (I misunderstood the way the employer DPSP afffects the RRSP contribution room). As a result, the total RRSP contribution for 2019 exceeds the available contribution room by ~2000$. I haven't filed my taxes for 2019 yet.

What would be my best course of action? As far as I understand, I can do the following:

1) Immediately withdraw the excess amount from the account. Write a letter to CRA and ask to waive the 1% penalty.

Is there anything else I can do? Can I simply report I made these contributions but do not use usem for current year's deductions?
9 replies
Deal Addict
Dec 28, 2007
1145 posts
736 upvotes
Assuming you had some employment income in 2019, you will have new RRSP room as of January 1 2020, so I don't think there is any benefit to withdrawing the money now. Just report the contributions when filing your 2019 taxes and keep your deduction within your 2019 RRSP deduction limit. You may get charged a penalty for being over the limit in December 2019.
Deal Addict
Jan 2, 2015
1633 posts
638 upvotes
Toronto, ON
At worst you made a one month overpayment.

Fill out a T1-OVP-S for 2019. If you don't, the CRA may fill out one anyway, but they don't know exactly when you made the contribution. They might assess you for 10 months (March to December) rather than the one month. The tax is 1% per month, so don't pay 10 times that amount! The deadline for that return is the end of March, I believe.

Unless the contribution is very large, you were not in an overcontribution position as of January 2020. You won't know exactly how much room you have until you file your return.
Deal Fanatic
User avatar
Jan 31, 2006
8033 posts
2358 upvotes
Toronto
stanleyinfrared wrote: Dear RFDers,

Have any of you had to resolve overcontributions to your RRSPs? I would be grateful if you could share your experiences.

Here is what happened:

1) I contributed amount X$ that was within my RRSP contribution room for 2019 + 2000$ buffer in early 2019.
2) Later, I realized that I still have some room so I made an additional contribution (December 2019). I figured out that I made an error in my calculations (I misunderstood the way the employer DPSP afffects the RRSP contribution room). As a result, the total RRSP contribution for 2019 exceeds the available contribution room by ~2000$. I haven't filed my taxes for 2019 yet.

What would be my best course of action? As far as I understand, I can do the following:

1) Immediately withdraw the excess amount from the account. Write a letter to CRA and ask to waive the 1% penalty.

Is there anything else I can do? Can I simply report I made these contributions but do not use usem for current year's deductions?
You can make a one time over contribution of $2000. I am not sure if you have use it before.
Deal Fanatic
User avatar
Nov 19, 2004
9139 posts
2045 upvotes
Cambridge, ON
Don't bother withdrawing it if you are going to have income in 2020. As of Jan 1, whatever is over contributed in 2019 can just go towards 2020 contributions (assuming you gain enough room for 2020 to cover it). Just make sure you have this understood for 2020 calculations.

At this point you are on the hook for the penalty. Luckily it was just one month, so as mentioned above, be sure to fill out the T1-OVP-S so it is made clear that you were only over one month.

That said, your DPSP is a pension adjustment. Pension adjustments affect your contribution limit for the following year. Is this the first year you have been getting the employer DPSP? Your NOA from your 2018 taxes will indicate your 2019 contribution room. I say this because you can contribute to your RRSP up to the amount of the contribution room indicated on your NOA. The DPSP is already factored into that for the 2019 amount (based on the 2018 pension adjustment). Any DPSP contributions made in 2019 will show as a pension adjustment on your 2019 tax return affecting your 2020 limit.
[OP]
Member
Mar 20, 2018
262 posts
165 upvotes
cgtlky wrote: You can make a one time over contribution of $2000. I am not sure if you have use it before.
I haven't heard about this (that an individual will be forgiven for the first time they over-contribute for less or equal to $2000). I am, of course, aware of the 2000$ buffer. Did you mean the same thing? By overcontributing I meant exceeding the available RRSP room + 2000$ buffer.
[OP]
Member
Mar 20, 2018
262 posts
165 upvotes
don242 wrote: Don't bother withdrawing it if you are going to have income in 2020. As of Jan 1, whatever is over contributed in 2019 can just go towards 2020 contributions (assuming you gain enough room for 2020 to cover it). Just make sure you have this understood for 2020 calculations.

At this point you are on the hook for the penalty. Luckily it was just one month, so as mentioned above, be sure to fill out the T1-OVP-S so it is made clear that you were only over one month.

That said, your DPSP is a pension adjustment. Pension adjustments affect your contribution limit for the following year. Is this the first year you have been getting the employer DPSP? Your NOA from your 2018 taxes will indicate your 2019 contribution room. I say this because you can contribute to your RRSP up to the amount of the contribution room indicated on your NOA. The DPSP is already factored into that for the 2019 amount (based on the 2018 pension adjustment). Any DPSP contributions made in 2019 will show as a pension adjustment on your 2019 tax return affecting your 2020 limit.
I did have income in 2019 and will hopefully continue having it in 2020 Smiling Face With Open Mouth. 2019 is NOT the first year I have been getting DPSP from the employer.

This is my understanding of how things work. Your previous year's income determine your next year's RRSP room. This room is reduced by employer's DPSP contributions. So, in order to calculate the room I could have used myself in 2019, I need to subtract out the employer's 2019 DPSP contributions from the 2019 RRSP room as calculated by the CRA and shown in the user's CRA profile. In the beginning of the new year it is not possible to figure out what the total DPSP will be by the end of the year. One have to make estimates based on current contributions.

That being said, seems like I misunderstood the way things work. My RRSP available contribution is already net of DPSP contributions. Whatever is shown in the available room is what an individual can use independently of any DPSPs (i.e., without having to adjust for/subract out DPSP). Is this correct?
Deal Addict
Feb 2, 2007
1040 posts
1020 upvotes
GTA
stanleyinfrared wrote: I did have income in 2019 and will hopefully continue having it in 2020 Smiling Face With Open Mouth. 2019 is NOT the first year I have been getting DPSP from the employer.

This is my understanding of how things work. Your previous year's income determine your next year's RRSP room. This room is reduced by employer's DPSP contributions. So, in order to calculate the room I could have used myself in 2019, I need to subtract out the employer's 2019 DPSP contributions from the 2019 RRSP room as calculated by the CRA and shown in the user's CRA profile. In the beginning of the new year it is not possible to figure out what the total DPSP will be by the end of the year. One have to make estimates based on current contributions.

That being said, seems like I misunderstood the way things work. My RRSP available contribution is already net of DPSP contributions. Whatever is shown in the available room is what an individual can use independently of any DPSPs (i.e., without having to adjust for/subract out DPSP). Is this correct?
The DPSP contributions in 2019 affect your RRSP room in 2020, not in 2019.

The employer does not need to care about your 2019 RRSP room to administer the plan in 2019, all they care is your earnings in 2019 (they know it, because they are paying you every month); they have to be mindful if you earn a big salary that the annual maximum is not exceeded (but again, nothing to do with the 2019 RRSP room).
Deal Fanatic
User avatar
Nov 19, 2004
9139 posts
2045 upvotes
Cambridge, ON
stanleyinfrared wrote: I did have income in 2019 and will hopefully continue having it in 2020 Smiling Face With Open Mouth. 2019 is NOT the first year I have been getting DPSP from the employer.

This is my understanding of how things work. Your previous year's income determine your next year's RRSP room. This room is reduced by employer's DPSP contributions. So, in order to calculate the room I could have used myself in 2019, I need to subtract out the employer's 2019 DPSP contributions from the 2019 RRSP room as calculated by the CRA and shown in the user's CRA profile. In the beginning of the new year it is not possible to figure out what the total DPSP will be by the end of the year. One have to make estimates based on current contributions.

That being said, seems like I misunderstood the way things work. My RRSP available contribution is already net of DPSP contributions. Whatever is shown in the available room is what an individual can use independently of any DPSPs (i.e., without having to adjust for/subract out DPSP). Is this correct?
@adrian2 has it correct. Your DPSP amount that your employer contributed will affect your 2020 room. It will show up on your T4 as a pension adjustment (box 52). You report this adjustment in your tax return for 2019, but it does not affect anything for 2019. The adjustment is used to calculate your 2020 room, reducing it.
[OP]
Member
Mar 20, 2018
262 posts
165 upvotes
Thank you guys for having helped me to figure this out. I (mistakenly) thought that I overcontributed to my RRSP.

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