– The simplest way to see how much you can contribute to your RRSP is to
check your last Notice of Assessment from the Canada Revenue Agency. Your
personal allowable RRSP contribution limits for the year appear in a
special box at the bottom of that Notice. But if you’re going to
contribute, and you haven’t set up an RRSP yet, you’d better get a move on.
For the 2016 tax year, you have until March 1, 2017, to make a
contribution, provided you were not over the age of 71 in 2016.
Your maximum contribution to an RRSP is calculated as the lesser of 1) 18%
of your earned income from the prior year, or 2) the maximum contribution
limit for the tax year, or 3) the limit after deducting company pension
plan contributions. “Earned income” includes your salary, but may also
include alimony payments and rental income, but not investment income.
The maximum contribution limit for 2016 is set at $25,370. It increases to
$26,010 for 2017.
Carry forward contribution room
A contribution to an RRSP gives you a tax deduction for the year of the
contribution. This may reduce your overall tax bill, or even result in a
Many people are unable to make the maximum RRSP contribution in a given
year. If so, the rules let you carry forward the missed contribution
indefinitely as extra contribution room for future years. Your unused
contribution limit is also shown on your CRA Notice of Assessment.
The carry-forward feature may be especially useful for those who expect to
be in a higher tax bracket in future years.
The sooner you start tax-sheltered compounding in your RRSP, the better.
Start off with small amounts, gradually increasing as your salary rises.
Remember the magic of compounding. Even a $500 monthly investment
compounded monthly at a relatively conservative rate of 6% will grow to
$500,000 in 30 years.
You can also increase your contribution in a given year by using
“contribution room” you’ve carried forward from previous years (the
contribution you didn’t make last year, for example). And you should also
reinvest your tax refund. It’s found money.
RRSPs may hold a wide variety of investments, including mutual funds and
exchange-traded funds. Here’s a quick list of what the CRA says are
qualified RRSP investments. The
has more details.
Federal, provincial, municipal government bonds are eligible. Bonds of
publicly-traded companies are also qualified investments.
This encompasses common and preferred shares, exchange-traded funds,
closed-end funds and other securities that are traded on designated stock
exchanges in Canada or other countries. This also includes limited
partnership units and royalty units. Canadian and U.S. stock exchanges are
listed as designated exchanges. However, “over-the-counter” trading systems
are not eligible.
Exchange-traded funds (ETFs).
ETFs traded on designated stock exchanges are qualified RRSP investments.
Canadian mutual funds are eligible – and there are thousands of these to
Covered put and call options on qualified stocks are eligible as RRSP
investments. Note, though, that I wouldn’t recommend options for everyone.
These are specialized types of investment products, and can be quite risky
if you don’t know exactly what you’re doing.
Money or cash deposits
(including foreign currencies under certain circumstances).
Guaranteed Investment Certificates are, of course, qualified RRSP
Annuities, mortgages, certain shares of small business corporations and
venture capital corporations can be put in an RRSP. You may also put money
into investment grade gold and silver bullion, coins, and certificates. But
again, I wouldn’t recommend rushing out and putting your RRSP retirement
fund into precious metals or venture capital corporations, for example,
without some pretty heavy-duty advice from a qualified adviser.
Know yourself and invest wisely
For many of us, an RRSP is our only source of retirement income apart from
the Canada Pension Plan. And while you can invest in just about every type
of asset class, an RRSP not the place to speculate on junior mines,
high-tech start-ups, commodities, or other risky and volatile assets.
Remember, tax benefits like the dividend tax credit, the capital gains tax
exemption, and the ability to offset losses against gains are lost within
Aside from not contributing to an RRSP at all, the RRSP investment choice
is where most people go astray. Most of us tend to overestimate our
capacity to deal with market volatility and take investment losses. So be
realistic about your own tolerance for risk. Work with an objective
financial planner to allocate your RRSP assets according to a plan
determined by your personal goals and a realistic assessment of your
tolerance for risk. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. Contact her directly by
phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
© 2017 by the Fund Library. All rights reserved. Reproduction in whole or
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The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
loss. No guarantee of investment performance is made or implied. It is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.