How Much Can I Put in My RRSP & How Is It Calculated?

A Registered Retirement Savings Plan (RRSP) is a retirement savings vehicle available in Canada. It allows individuals to save for retirement with significant tax advantages, primarily through tax-deferred growth on investments held within the plan. These plans encourage long-term savings by offering immediate tax deductions for contributions. The Canadian government establishes annual contribution limits to ensure equitable distribution of these tax benefits and manage the overall fiscal impact.

Calculating Your RRSP Contribution Limit

The core of an individual’s RRSP contribution limit calculation for a given year is based on a percentage of earned income from the previous year, subject to an annual maximum set by the Canada Revenue Agency (CRA). For 2025, the annual maximum RRSP contribution limit is $32,490, based on earned income from 2024.

Earned income, for RRSP purposes, encompasses active income. This includes salary, wages, and taxable benefits from employment. It also extends to net income from self-employment activities, net rental income from real property, and royalties from authored works or inventions. Certain government benefits like Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) disability benefits also qualify as earned income.

However, not all income sources contribute to RRSP earned income. Passive income, such as investment income, capital gains, and employment insurance benefits, are excluded. Deductions like current year business losses, rental losses, or deductible spousal support payments can reduce the amount of earned income.

The Pension Adjustment (PA) can reduce an individual’s RRSP contribution room. The PA reflects the estimated value of benefits accrued in a registered pension plan (RPP) or a deferred profit sharing plan (DPSP) for a given tax year. This adjustment ensures individuals participating in employer-sponsored pension plans do not receive disproportionately higher tax-sheltered savings benefits compared to those who primarily rely on RRSPs. The PA amount is reported in Box 52 of an individual’s T4 slip.

Any unused RRSP contribution room from previous years is carried forward and added to the current year’s limit. This allows individuals to utilize contribution room accumulated over time, even if they were unable to contribute the maximum in prior years. The complete formula for calculating the current year’s RRSP contribution limit is: 18% of the previous year’s earned income (up to the annual maximum) minus any Pension Adjustment, plus any Unused RRSP Contribution Room carried forward from earlier years.

Accessing Your Official Contribution Limit

To determine an individual’s precise RRSP contribution limit, the most reliable source is the Canada Revenue Agency (CRA). The CRA calculates this limit by incorporating all personal financial factors, including earned income, pension adjustments, and any unused contribution room. This official figure helps avoid over-contributions and maximize tax benefits.

One primary method for accessing this information is through the CRA My Account online portal. This secure service provides a detailed breakdown of an individual’s tax information, including their “RRSP and PRPP deduction limit statement.” The portal is updated after tax returns are processed, offering the most current and accurate limit.

Another authoritative source for your RRSP deduction limit is the Notice of Assessment (NOA), which the CRA issues after an individual files their income tax return. This statement outlines the calculation of the RRSP deduction limit for the upcoming year.

The CRA may also send a Form T1028, titled “Your RRSP Information for 20XX.” These official documents are the definitive references for an individual’s specific RRSP contribution limit.

Consequences of Exceeding Your Limit

Exceeding the RRSP contribution limit can lead to financial penalties imposed by the Canada Revenue Agency. The CRA provides a grace amount of $2,000. Penalties apply to contributions that surpass the limit by more than this amount. This $2,000 buffer is a lifetime allowance, not an annual one, to accommodate minor errors.

For contributions exceeding the $2,000 grace amount, a penalty tax of 1% per month is levied on the excess. This monthly penalty continues as long as the over-contribution remains in the RRSP. For example, if an individual over-contributes by $5,000, the penalty is calculated on $3,000 ($5,000 minus the $2,000 grace amount), resulting in a $30 monthly penalty until the excess is resolved.

To rectify an over-contribution and stop penalties, individuals must withdraw the excess amount from the RRSP. To facilitate this withdrawal without immediate tax withholding, individuals must file Form T3012A with the CRA. This form authorizes the financial institution to refund the unused contributions without deducting taxes at the time of withdrawal.

Individuals must also file Form T1-OVP. This form calculates and reports the penalty tax owed due to the over-contribution. The T1-OVP form, along with any payment for the penalty tax, is due within 90 days after the end of the calendar year in which the excess contributions occurred. Failure to file this form or pay the penalty on time can result in additional late-filing penalties and interest charges.