The RRSP contribution deadline is today — here's what you should know

Tax season’s here and today’s the deadline to contribute to your Registered Retirement Savings Plan (RRSP).

With the soaring cost of living, a lot of Canadians are feeling disheartened about saving up for retirement.

While having an RRSP helps you prepare for the future, there are other benefits to contributing to it today.

Daily Hive spoke with H&R Block tax expert Yannick Lemay about what you should know about the RRSP.

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What are the benefits of contributing to your RRSP?

Lemay says there are three main reasons why you should set aside money in your RRSP account.

The first and most obvious benefit is that contributing to that account helps you put money aside for retirement.

“You don’t pay income tax on all of the income you generate in your RRSP account until you withdraw the money,” explained Lemay.

“By keeping that money in that account, then that money will make more money the next year, and the following year because you haven’t paid personal taxes on it until you withdraw those contributions later on.”

The second benefit is why it’s important to contribute before the RRSP deadline.

Lemay says putting cash aside in that account reduces your net income, and therefore, your taxable income.

That means you could get a bigger tax return, depending on how much you contribute.

The third benefit is that, if you contribute to your RRSP and lower your taxable income, you might get access to additional benefits and credits that you weren’t eligible for because your income was too high, explains Lemay.

“You can also get more, for example, from the Canada Child Benefit, because those are calculated on your family net income as well,” he said.

The tax expert said this means you could get more from the GST credit, Climate Action Incentive payment, Medical Expenses credit, and other credits that are calculated on your tax return.

📣 Reminder!

The deadline to contribute to your registered retirement savings plan (RRSP) for the 2023 tax year is February 29th, 2024.

More info 👉 https://t.co/W5Z4mVgEd4 #CdnTax pic.twitter.com/tHy4c4buK6

— Canada Revenue Agency (@CanRevAgency) February 12, 2024

How much can you contribute before the RRSP deadline?

Lemay says if you want to approximate how much your contribution limit is, it’s basically 18% of your income from the previous year.

You’ll need to take into account your work income, or your self-employed income.

Lemay says you can also verify this amount on the notice of assessment that you receive from the Canada Revenue Agency (CRA) after you file your taxes, and on your CRA My Account.

In addition, there’s this handy chart from the federal government.

What if you have employer-sponsored retirement or pension plans?

According to Lemay, if you have an employer-sponsored RRSP, which means your workplace is contributing to your retirement fund, it might reduce your RRSP contribution limit.

“Your employer will include this information on your T4 slip and the CRA will automatically reduce your RRSP contribution limit based on the information your employer provides,” he explained.

What about carry-forward opportunities to contribute more?

Lemay stresses that it’s important that you don’t over-contribute and exceed your maximum contribution limit.

“If you contribute more than $2,000 over your contribution limit, there are severe penalties,” he explained.

That being said, Lemay says that if you set aside less than your maximum RRSP contribution limit, that doesn’t mean that you need to deduct the maximum limit this year on your taxes.

He gives the example of someone who contributes $10,000 with a max limit that’s far above than that.

“That $10,000 is already in your RRSP account already making money on a tax-deferred basis, so you’re not paying taxes on this income,” he said. “Or you can choose, for example, to deduct $7,000 on your income on your tax return and keep the deduction of the balance for the following year.”

He added that it also depends on your tax bracket.

“You might want to keep the $3,000 deduction for a year you’ll be in a higher tax bracket,” he said. “So, you’ll save more money on your contribution.”

For more ways to get bigger tax refunds and pay less taxes to the CRA, read this and this.