How Many RRSP Accounts Can You Have?
Explore the nuances of holding multiple RRSP accounts, understanding how your total contribution limits and tax reporting apply.
A Registered Retirement Savings Plan (RRSP) stands as a popular savings vehicle in Canada, designed to help individuals accumulate funds for retirement while providing significant tax advantages. Contributions made to an RRSP are typically tax-deductible, reducing your taxable income in the year they are made. The investments held within an RRSP grow on a tax-deferred basis, meaning you generally do not pay tax on the investment income or capital gains until you withdraw the money in retirement. Individuals can indeed hold multiple RRSP accounts, offering flexibility in managing their retirement savings.
Holding Multiple RRSP Accounts
There is no legal restriction on the number of Registered Retirement Savings Plan accounts an individual can hold. Many Canadians choose to open and maintain multiple RRSP accounts for various practical reasons. For instance, an individual might have an RRSP with their primary bank for convenience, another with an online brokerage for specific investment options like stocks or exchange-traded funds, and a third from a previous employer’s group RRSP plan. This approach allows for diversification across different financial institutions and investment strategies.
Holding multiple accounts can also be beneficial if an individual seeks specialized investment products or advice from different financial advisors. Some individuals might maintain separate accounts to take advantage of specific Guaranteed Investment Certificate (GIC) rates offered by various institutions. While having multiple accounts is permissible, the fundamental rules, such as overall contribution limits, apply to the individual taxpayer as a whole, not per account.
Applying Contribution Limits Across Accounts
Regardless of how many RRSP accounts an individual maintains, the annual contribution limit remains a personal limit that applies to all accounts combined. The Canada Revenue Agency (CRA) calculates your RRSP contribution room each year, primarily based on 18% of your earned income from the previous year, up to a specified annual maximum. Any unused contribution room from prior years is carried forward indefinitely and added to your current year’s limit, increasing your overall available contribution room. This total contribution room is accessible through your CRA My Account or on your Notice of Assessment, which you receive after filing your tax return.
If you participate in a company-sponsored pension plan, your RRSP contribution limit is reduced by a “pension adjustment” amount, reflecting the value of benefits accrued under that plan. Contributions made to any of your individual RRSP accounts collectively count towards your single, personal contribution limit. Exceeding this combined limit can lead to penalties. The CRA permits a lifetime over-contribution buffer of $2,000 without penalty. Any amount contributed beyond this buffer is subject to a tax of 1% per month on the excess until it is withdrawn or new contribution room becomes available.
Tax Reporting and Account Management
When you have multiple RRSP accounts, each financial institution holding your RRSP will issue specific tax documents for your contributions and any withdrawals. For contributions, you will receive RRSP contribution receipts. These receipts are essential for claiming your RRSP deduction on your annual income tax return. You must consolidate all these receipts to accurately report your total contributions.
If you make withdrawals from any of your RRSP accounts, the financial institution will issue a T4RSP slip, reporting the income received. This slip details the gross amount of the withdrawal and any income tax withheld. You must include all T4RSP slips when filing your tax return, as RRSP withdrawals are generally considered taxable income. While managing multiple accounts offers flexibility, it can also increase the administrative burden, requiring careful tracking of various statements and tax forms. Consolidating accounts into a single institution can simplify tracking performance, rebalancing investments, and streamlining tax reporting, potentially saving on administrative fees.