How much can I contribute to my RRSP Limit?

RRSP is a tax deferral vehicles used widely in Canadian tax system. Similar to 401K in United States, RRSP provides tax deferral for earned income in Canada.

Every taxpayer develops their “Contribution Limit” (Amount of maximum contribution that can be deducted against earned income) based on their earned income. If the Contribution limit is not utilized during the year it’s available, it can be carried forward and used in future income. Any income earned within RRSP is tax deferred also until the funds are withdrawn in future.

Many individuals have asked me about the right time to invest into RRSP. There are many factors and individual situation which will determine the right time to contribute. However, “rule of thumb” is to invest in RRSP when you are in a higher income rather than lower income. One may want to accumulate their RRSP limit to bring them down to the next lower marginal tax bracket.

While this is a locked in product, the funds are always available for withdrawal with a prefixed tax withheld at source. This means that if you withdraw from your RRSP after contributing it in the account before you are eligible for withdrawals (i.e. age 60), then bank will withhold relevant tax on the withdrawal (depending on amount withdrawn) and give the net amount to the contributor.

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