“You can contribute to your RRSP up to your contribution limit, which is based on factors such as your previous year’s earned income and any pension adjustment, and carried-forward deduction room,” says Claudio R. Saverino, a senior tax manager with BDO Canada LLP in Markham. “There are limits on how much of your contributions are tax-deductible and there is a penalty tax for contributions over these limits.”
While it may be advisable to maximize your RRSP contributions in order to accumulate sufficient funds for retirement, you should generally limit your contributions to the amount that’s currently tax-deductible at your income level.
“If you contribute more than your limit, you’ll be subject to a one-percent-per-month penalty tax to the extent that the over-contribution amount exceeds $2,000,” says Saverino. “This penalty tax is expensive, so it is not worthwhile to contribute above your limit.” Generally, for 2015, the limit is 18 percent of your previous year’s earned income, up to a maximum amount of $24,930.
This amount is reduced by the previous year’s pension adjustment. It can increase by any carry-forward contribution room.
