How does an RRSP transfer work?
Your RRSP room will roll over, meaning the quantity is cumulative. So 18% of your previous yr’s earned income as much as the present yr’s maximum contribution limit will turn into your RRSP room for the yr. For 2024, the utmost recent RRSP room a taxpayer can earn is $31,560 for individuals who had at the very least $175,333 in earned income in 2023. This can be added to any previously unused RRSP room from the past. For 2025, the utmost is $32,490, requiring income of $180,500 or more.
Interestingly, your RRSP room can be available retroactively to January 1, whenever you file your 2023 tax return.
If you’re a member of a retirement plan, whether it’s an outlined profit (DB) or defined contribution (DC) pension, your T4 slip will include a pension adjustment (PA) that calculates a discount in your RRSP room for the next yr. So your 2024 pension filing will reduce your RRSP room for 2025. This is completed to be sure that a retirement plan member doesn’t have an unfair advantage in earning tax-free retirement income over someone with no pension.
But don’t count twice
In your case, Lorraine, I might caution you to be sure that you understand your RRSP margin accurately. If your 2023 NOA says you could have $25,000 of accessible contribution margin for 2024, you almost certainly do not have the extra $31,560 of RRSP margin. If the NOA in query is for 2022 and shows your RRSP margin for 2023, it might be reduced by any RRSP contributions you made in 2023 or by a pension adjustment, so just be sure that you are not double counting.
If doubtful, register with the Canada Revenue Agency (CRA) My account Portal or call the CRA at 1-800-959-8281 to verify your RRSP room for 2024.
Interestingly, in the event you make your 2024 RRSP contribution in early 2024 based in your estimated recent RRSP room, you should have to assert it in your 2023 tax return even in the event you cannot deduct it until next yr. This is since you claim RRSP contributions whenever you make them, even when they are not deducted until a later yr.
Contributions made in the primary 60 days of the yr can be reported in your previous yr’s tax return, so contributions made through February 29, 2024, can be reported on a 2023 tax return. You also do not have to deduct an RRSP contribution even when you could have enough wiggle room. Claiming that the contribution was made and deciding to deduct that contribution are two various things.
Deposit a great amount into your RRSP
A typical example of that is your example, Lorraine, where you contribute a great amount like $55,000 in a single yr. If your income is $75,000 and also you withdraw $55,000 in a single yr, you’d only have $20,000 of taxable income.
