The RRSP Maximum
Contribution Rules

The RRSP maximum contribution limit is equal to 18% of earned income in the previous year minus an individual's pension adjustments,up to an annual limit

The limit applies to all your contributions to a registered pension fund, when you make them yourself or they are made on your behalf by your employer.

If you work full time for an employer, who deposits a portion of your earnings into a company pension plan. That means you have to subtract your pension contribution from your total contribution.

To see how much can be your RRSP maximum contribution for the current year, refer to your Notice of Assessment, which can be found on your previous year’s tax return.

• 2011: 18% of previous year’s earned income up to $22,450

• 2010: 18% of previous year’s earned income up to $22,000

• 2009: 18% of previous year’s earned income up to $21,000

• 2008: 18% of previous year’s earned income up to $20,000

+ Current year’s Pension Adjustment Reversal (PAR)

+ Unused deduction room earned in previous years

- Previous year’s Pension Adjustment (PA)

- Current year’s Past Service Pension Adjustment (PSPA)

• Unused contribution room can be carried forward indefitnetely.(subject to age limits)

• Contributions are deductible for the previous year if made within 60 days of year end.

• Contributions may be carried forward indefitnitely and deducted in a future year.

• Contributions to an individual RRSP may be made up to and including the year in which the annuitant turns 71.

• By December 31 of that year, RRSPs must be deregistered or transferred to a Registered Retirement Income Fund(RRIF) or an annuity.

To make your maximum contribution, it is based on your earned income. A common question I get is what is it?

Earned income is income that you receive for the workyou have done. It includes the annual total of:

• Net employment income

• Net income from a business or partnership

• Net rental income

• Net research grants

• Taxable disability benefits

• Supplementary unemployment benefits

• Taxable alimony, maintenance or child support

• Certain royalty income

- Investment income

- Taxable capital gains

- Limited partnership income

- Death benefit

- Retiring allowance

- Pension or DPSP income payments from RRSP, RRIF,Old Age Security (OAS), CPP or QPP

Example:

You earned $100,000 in 2010 and paid $4,250 into your company's pension plan, your maximum contribution would be $13,750

How did we come up with that figure?

Multiply $100,000 by 18% to determine your maximum contribution which would be $18,000

Subtract the $4,250 that you paid into your company plan

This gives you the total $13,750

Fortunately, your employer will do most of the number crunching for you. You will find your annual pension contribution (pension adjustment)on your T4 slip each year.

You also will not have to calculate your RRSP maximum contribution, because the tax department (CCRA) does it all for you and sends that alongwith your assesment

If you do not use your maximum contribution in a year, you can carry forward the unused contribution room indefitnely. If you areover 18, you can maintain an over contribution of $2,000 in an RRSP at any time.

The penalty for overcontributions beyond $2,000 is 1% per month, starting at the end of the first month in which the limitis exceeded, and payable no later than 90 days after the end of the year.