The rules around RRSP contribution room
As soon as a taxpayer starts to earn income—like employment income, self-employment income, royalties, research grants or net rental income—they accumulate room for their registered retirement savings plan (RRSP). There are no age limits, so a teenager with a part-time job can start to build their RRSP room as long as they file a tax return to report their earned income.
How does RRSP carry forward work?
Your RRSP room carries forward, meaning the amount is cumulative. So, 18% of your earned income for the previous year, up to the current year’s maximum contribution limit, becomes your RRSP room for the year. For 2022, the maximum is $29,210 for taxpayers with at least $162,278 of earned income in 2021. This gets added to any previously unused RRSP room from the past.
RRSP room becomes available retroactive to January 1, 2022, upon filing your 2021 tax return.
If you are a pension plan member, whether it is a defined benefit (DB) or defined contribution (DC) pension, your T4 slip will include a pension adjustment (PA) that will calculate a reduction in your RRSP room for the year. So, your 2021 pension enrollment reduces your 2022 RRSP room. This is done to ensure that a pension plan member does not have an unfair advantage to earn tax deferred retirement income over someone without a pension.
Don’t double count, though
In your case, Lorraine, I want to caution you to make sure your understanding of your RRSP room is accurate. If your notice of assessment (NOA) says you have $25,000 of available contribution room for 2021, you probably do not have an additional $27,230 of RRSP room. That figure happens to represent the maximum RRSP limit for 2020 for a taxpayer who had at least $151,278 of earned income in 2019 with no pension adjustment. It is not automatically available to all taxpayers. So, you might be double counting.
If in doubt, check your NOA, log in to the Canada Revenue Agency (CRA) My Account portal, or call the CRA at 1-800-959-8281 to confirm your 2021 RRSP room.
You have up until March 1, 2022, to contribute to your RRSP for the 2021 tax year. As stated above, when you file your 2021 tax return, you will get the 2022 RRSP room that becomes available back to January 1, 2022, so you may be able to contribute extra money. You will not be able to deduct it though until next year.
Interestingly, if you make your 2022 RRSP contribution in early 2022 based on your estimated new RRSP room, even though you cannot deduct it until next year, you may have to claim it on your 2021 tax return. This is because you claim RRSP contributions when made, even if they are not deducted until a future year.
