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 youremployer. 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.

Example:

You earned $40,000 in 2005 and paid $1,500 into your company's pension plan, your maximum contribution would be $5,700

How did we come with that figure?

Multiply $40,000 by 18% to determine your maximum contribution which would be $7,200

Subtract the $1,500 that you paid into your company plan

This gives you the total $5,700

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 RRSP 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.