RRSP Deadline 2020 & Contributions

RRSP Deadline 2013 for 2012 RRSP Contribution

Many Canadians may have challenges saving money for retirement due to the different situations and issues that can come up in our daily lives. Fortunately, there are systems in place to help these taxpayers in accumulating savings and encouraging smart investment. One of these includes the Registered Retirement Savings Plan (RRSP).

What is an RRSP?

A Register Retirement Saving Plan, also known as RRSP, is a retirement investment plan system set up by the Canada Revenue Agency in 1957 that allows individuals to accumulate savings for retirement on a tax-sheltered basis. This includes investments such as stock, bonds, mutual funds, etc.

RRSP is a type of account that is specifically set-up to provide favourable tax treatment for people who use the account to invest money. This is done in an effort to motivate individuals to save money for retirement and provide greater capital available for investment, by delaying the tax on the income earned in the account.

Contributions to your RRSP are deductible from your income tax return. This effectively reduces your taxable income, and thus, your tax liability.  Any investment income earned in the RRSP is tax-exempt while the funds remain in the plan. Once an individual withdraws funds from their RRSP they will then pay tax at their marginal tax rate.  This allows for tax deferral usually until a person retires as well as the ability to time contributions and deductions to take advantage of varying marginal tax rates depending on your stage in life.

Benefits of RRSP

RRSP is a great tool for allowing people to easily build up savings for retirement. Here are some notable benefits of having an RRSP:

Tax-Deductible Contributions

One benefit of contributions made to your RRSP is that you can claim your contributions as a deduction from your taxable income in the year. The higher the marginal tax bracket you are in the more tax savings you can gain. Assuming you are in a lower tax bracket you can make contributions but delay the tax deductions to future years when your income is in a higher bracket. In Ontario, this may result in approximate tax savings of up to 53% of any contributions made to your RRSP.

Tax-Free Growth

Once funds are in your RRSP account and being used to earn investment income, you do not pay any tax on your investment earnings as long as they are being kept in your RRSP account. This means that your savings will be compounded tax-free and allows your money to grow at a faster rate, since more is available for reinvestment. 

RRSP Transfer Tax Rates

You can transfer your RRSP savings tax-free into an annuity or a registered retirement income fund (RRIF) once you retire. This allows for ease of access to your savings through predictable annual payments, while also potentially paying lower tax on that income, assuming you are in a lower tax bracket at the time of retirement. 

Tax Burden Reduction on Spousal RRSP

It’s possible to further accumulate tax-free savings by having a spousal RRSP set up. This would allow you to contribute to your spouse’s RRSP.   Assuming you are in a higher marginal tax rate than your spouse, this can be a smart strategy to get your contribution deducted at a higher rate, and when the income is eventually withdrawn by your spouse, to be taxed at a lower marginal rate.

Tax-Free RRSP Partial Home Down Payment

Using the Home Buyer’s Plan (HBP), you can withdraw $35,000 (previously $25,000)  out of your RRSP as a downpayment for a qualifying home purchase, generally your first home. Any amounts withdrawn would have to be repaid into the account over a 15 year period. This program allows taxpayers to use their RRSP accounts, and its related benefits, to save up for their first home faster.

A similar program is available under the Lifelong Learning Plan (LLP) to allow taxpayers to withdraw funds from their RRSP for eligible post secondary education programs.

Overall having an RRSP can lead to a net-benefit for many individuals and can be well worth setting up. However, since not everyone can gain the full benefits of an RRSP it’s a good idea to first talk to a professional such as your accountant or any other individuals experienced with RRSPs before deciding to set one up and begin contributions. In some circumstances, based on estimations of future earning potential, an RRSP may not make sense for you.

For more questions regarding the Registered Retirement Savings Plan and setting one up you can talk to us at contact us at info@srjca.com or 416-898-4235. SRJ Chartered Accountants Professional Corporation are Chartered Accountants in Toronto and specialize in helping individuals reduce taxes and tax planning. 

Frequently Asked Questions

2020 maximum RRSP contribution limit: $27,830

The 2020 RRSP contribution limit is $27, 830. If you did not utilize your full RRSP contribution limit from prior years you can carry forward the unutilized amount to 2020.  Therefore your RRSP contribution limit for 2020 may be higher than the maximum of $27,830. Feel free to contact the team at SRJ Chartered Accountants to help determine your 2020 RRSP deduction limit and how much of a contribution makes sense for you.

What is the RRSP deadline?

The RRSP contribution deadline for the  2020 tax year  is  March 1, 2021. Therefore, your 2020 RRSP contributions must be made before the RRSP contribution deadline to be eligible for a deduction on your 2020 taxes (due April 2021).

What happens if you miss the RRSP deadline?

If you miss an RRSP deadline you will lose out on a tax break and possibly lose out on some of your money growing tax-free during the time you missed. However, there are options in case you do miss a deadline, please contact the team at SRJ Chartered Accountants to determine the best scenario for yourself.

Can I contribute to RRSP after the deadline?

You have approximately 60 days after the end of the year to make your contributions for the 2020 RRSP deadline contribution year.

Can I claim RRSP contributions in future years?

It is indeed possible to claim your RRSP contribution in future years. As long as the contributions are not claimed as a deduction, the unused amount of contribution room is still available. You can claim these deductions in future years. This is ideally done when you expect your taxable income in the future to be higher.ou will still be able to benefit from the tax free growth of your investment income in your RRSP despite when you actually claim the contribution deduction. 

Why is my RRSP limit low?

The amount of RRSP you can contribute each year is created using your contribution limit for the current year including any previous unused contribution room found from previous years. Your current year contribution limit is subject to many factors including how much you earned in the prior year, a maximum set by the CRA, or any reductions as a result of a company pension you may have available.