RRSP carry-forward: second chances

Usually, Canada Revenue Agency doesn’t give you many second chances. But rules on when you can contribute to RRSPs and use RRSP tax deductions are suprisingly flexible.  Understanding them can really save tax!

What if I don’t use all my RRSP contribution limit?

Unused contribution room can be carried forward to use in any future year. However, you cannot contribute to an RRSP for a person (yourself or your spouse) who already turned age 71 in the previous year.

Do I have to immediately deduct all my RRSP contributions?

No. You can choose when to deduct them, to maximize your tax savings. Deduct them now, or in a future year, or even divide them between years. See these examples to see how waiting to deduct contributions may increase your tax savings.

Can I catch up once retired?

Yes. Many people forget they can contribute even without current earned income (for example, after retiring). If you have unused RRSP contribution room from past years and funds available, contributing to your own or your spouse's RRSP is allowed up until the end of the year the planholder turns age 71.

But watch out for special situations where contributing to an RRSP may not make sense. For example, where you'll lose eligibility for the Guaranteed Income Supplement (GIS), or your tax rate when withdrawing in retirement will be much higher than your initial tax savings. Other options, such as a Tax Free Savings Account (TFSA), might be more appropriate for your circumstances. See Mortgage or RRSP or TFSA for more.

A Vancity investment professional can help you create a plan to catch up on unused RRSP contribution room. To speak with an investment professional, contact 604-709-5955, visit your local branch or in your neighborhood.

+ Unused RRSP deductions are reported on your annual Notice of Assessment from Canada Revenue Agency.