# RRSP Contribution limit + current year



## janus10 (Nov 7, 2013)

So, if CRA tells me that, based on my 2013 net income that I have $X contribution limit for 2014 and I have contributed to my spouse' RRSP that same $X amount this year, when can I make contributions based on my 2014 income? Can I do it in 2014 or do I have to wait until 2015?


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## OptsyEagle (Nov 29, 2009)

January 1st, 2015


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## none (Jan 15, 2013)

^ I don't think that's technically correct. If that were the case you wouldn't be able to contribute to pensions & RRSP matching programs for new jobs in your first year.

RRSP room accumulates as you earn income? That's right isn't it?


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## Spudd (Oct 11, 2011)

none said:


> ^ I don't think that's technically correct. If that were the case you wouldn't be able to contribute to pensions & RRSP matching programs for new jobs in your first year.
> 
> RRSP room accumulates as you earn income? That's right isn't it?


It's based on your previous year's income. 
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/lmts-eng.html


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## none (Jan 15, 2013)

But by that rational a person fresh out of university and starting a new job couldn't contribute to their RRSP until their second year of employment? That doesn't make sense to me.

From above link:

Contributions you can deduct for 2013

For 2013, you can deduct contributions you made to your RRSP from January 1, 1991, to March 3, 2014 (the first 60 days of 2014). You can deduct these contributions if you did not deduct them for any other year, and if they are not more than your RRSP deduction limit for 2013. Even if you can no longer contribute to your RRSP in 2013 because of your age, you can deduct your unused RRSP contributions up to your RRSP deduction limit.


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## Spudd (Oct 11, 2011)

For the first year you contribute to an RRSP, you must have filed an income tax return the previous year and declared employment or business income. (from this link: http://www.rrq.gouv.qc.ca/en/flashretraiteqc/Pages/capsule_retraite_010.aspx ). 

What you cut/pasted above is regarding deductions that you might have contributed in an earlier year, nothing to do with contributions.


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## none (Jan 15, 2013)

So someone who has never had a job and (say) starts a job making 100K in their first year - can't benefit from RRSP contributions or company matching pension programs until their second year of employment? 

That doesn't make sense to me...


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## Eclectic12 (Oct 20, 2010)

none said:


> ... If that were the case you wouldn't be able to contribute to pensions & RRSP matching programs for new jobs in your first year.


For all the pensions I've been offered, I couldn't join the pension until working for the company for two years.

I was never offered RRSP matching so I can't say .... but I suspect there may be the same delay as I doubt employers want to pay to setup the account/administration for someone they fire three months later. Maybe someone with such a plan can comment.




none said:


> ... RRSP room accumulates as you earn income? That's right isn't it?


Everything I've seen written (CRA or newspapers) says it's based on last year's income.




none said:


> ... But by that rational a person fresh out of university and starting a new job couldn't contribute to their RRSP until their second year of employment? That doesn't make sense to me.


If they've filed no tax returns to show income ... then yes. 

Having the maximum RRSP contribution room available is why a tax tip is to encourage young people with income to file tax returns starting when they have income instead of when they owe taxes. This reports the income so that there is RRSP contribution room earned as early as income is earned.

I'm not finding the newspaper articles that say this but CRA's web site says that in addition to possible tax refunds, credits etc:


> ... reporting any income (no matter how modest!) opens up registered retirement savings plan contribution room---even if it’s not used right away. What a great opportunity for future tax savings when your income – and taxes – are higher.


http://www.cra-arc.gc.ca/nwsrm/txtps/2013/tt130408-eng.html


As for your university student - most that I know are at minimum working through the summer to help with tuition so the idea there would be no RRSP contribution room available does not seem reasonable to me.


Cheers


*PS*

Here's a blog that says the same thing.
http://www.michaeljamesonmoney.com/2011/03/benefits-of-filing-tax-return-for-low.html


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## none (Jan 15, 2013)

huh interesting -- Good to know.

I always thought that you accumulated RRSP room as you went forward. I may have thrown my ex under the tax bus by accident. Whoops

For example, she had 10500K of unused RRSP room and she put in 10K leaving only 500 left

Of course, she puts money into her government pension each paycheck. <sigh> this isn't going to be good I don't think....


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## Eclectic12 (Oct 20, 2010)

none said:


> So someone who has never had a job and (say) starts a job making 100K in their first year - can't benefit from RRSP contributions or company matching pension programs until their second year of employment?


I'm not sure why you are focused on a job ... my sister reported her baby sitting money on her tax return, she owned no income tax and was granted RRSP contribution room. From an RRSP contribution room perspective ... it's not about a job, it's about reporting income on a tax return. Income can be from baby sitting, garage sales etc. ... as well as a job.

For the person who has never filed a tax return then starts a $100K job ... this matches my experience as well as what I have seen written.

As I say, usually by the time anyone I know starts working full time, there's been one or more part time jobs, where tax returns were filed.
So the number in this situation, even if they were not encouraged to file tax returns early, is likely small.


Cheers


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## none (Jan 15, 2013)

It was simply a scenario to give an extreme example.

Lets try another one. 
1)A kid files a return at 17 and has unused contribution room of $1.
2) He turns 18 and lands a job paying 100K per year.
3) He can only put in $1 into an RRSP in the first year of his employment?
4) The second year of employment he should have 18K of unused contribution room and can then put in 18K into his RRSP?

I always thought you could estimate it and it gets washed out in your notice of assessment. I.e the 18 year old kid could estimate he could put in 18K in year 1.


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## Eclectic12 (Oct 20, 2010)

none said:


> ... I always thought that you accumulated RRSP room as you went forward.


The trouble is that while income in 2014 is going to earn RRSP contribution room, this number is going to be adjusted by a series of factors.
A factor that will reduce it is contributing to a pension, which results in a pension adjustment (PA) that is subtracted from what was earned.
Some that may increase it are investment income or leaving a DB pension which grants a pension adjustment reversal (PAR).

Some the employer will know about and some they won't. 

So the "same year" use of RRSP contribution room that I am aware of are strictly limited (ex. pension contributions, re-directing overtime to a group RRSP), where any that I have used have a waiting period before the employee can join.





none said:


> ... I may have thrown my ex under the tax bus by accident ...
> For example, she had 10500K of unused RRSP room and she put in 10K leaving only 500 left ....


I doubt it.

The gov't pension contributions are generating a PA, which will reduce *next year's* earned RRSP contribution room. It has no impact on already earned, unused RRSP contribution room. As long as there was $10,500 of unused RRSP contribution room - she's still okay.

If she only has $500 left and contributes in 2015 based on a bad assumption - then she could be in trouble.

For example, if the new RRSP contribution is estimated based on 18% x annual income, without subtracting the PA - there could be a wide difference. A friend in a DB pension who made this error was estimating about $13K more than the correct number was (i.e. estimate $17K where the real number was $4K).


Cheers


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## Eclectic12 (Oct 20, 2010)

none said:


> It was simply a scenario to give an extreme example.


Fair enough ... 



none said:


> ... 3) He can only put in $1 into an RRSP in the first year of his employment?


If he's in tax year 201x, where his 201x RRSP contribution limit is $1, my understanding is that's all he can put in.

There are employer plans that will affect the 201x + 1 RRSP contribution room for contributions made in 201x ... but as I say, my experience is that these plans are typically made available after a set period of employment.




none said:


> ... 4) The second year of employment he should have 18K of unused contribution room and can then put in 18K into his RRSP?


It might vary a bit as "earned income" is used for the 18% calculation. Union/professional dues or employment expenses are examples of potential factors which reduce earned income.

There's a bunch of other factors (ex. PA, PAR) but since I'm assuming a two year wait to join any sort of company plan, they won't come into play yet.




none said:


> ... I always thought you could estimate it and it gets washed out in your notice of assessment. I.e the 18 year old kid could estimate he could put in 18K in year 1.


The posts/discussion I've seen are to estimate an RRSP contribution for *the following year* before the current year tax return has been filed. 

Using your example, it would be the 18 year old estimating in year 1 that he would have $18K available on Jan 1 of year two so that he doesn't have to wait until the year 1 tax return is filed/accepted to make a contribution.


Personally ... unless one is well familiar with the calculations and is sure changes have been dealt with accurately, I'd rather wait for the official calculation.


Cheers


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## none (Jan 15, 2013)

I was more thinking that the 18 year old could estimate that he could put in approx 18% of the gross of each paycheck into an RRSP the first year of meaningful employment and not have to wait until the next year to start contributing. Or, as you say, throw in 15% or less to ensure he doesn't overcontribute.


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## Plugging Along (Jan 3, 2011)

none said:


> I was more thinking that the 18 year old could estimate that he could put in approx 18% of the gross of each paycheck into an RRSP the first year of meaningful employment and not have to wait until the next year to start contributing. Or, as you say, throw in 15% or less to ensure he doesn't overcontribute.


I am pretty sure that the person has the wait until the following tax year. RRSP contributions are because on previous years earned income, you can start contribute the following year. 

Pensions are different, as they take a pension adjustment and reduce next years earned income. 

I can't answer about a group rrsp.


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## Guban (Jul 5, 2011)

I believe that none is correct. The 18 year old can contribute starting in January even though he doesn't have the deduction room. The only thing to worry about is contributing too much and attracting the 1% per month penalty. If he puts in 18k in January 2015, and declares it on his 2014 tax return, the penalty is calculated if he is more than $2k over his deduction room starting in January 2016.


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## Eclectic12 (Oct 20, 2010)

... I'm not sure who is agreeing with whom ... :biggrin:

You and I are talking about waiting until Jan, where as I read it, None is questioning the need to wait.

I am taking the first tax return as 2013, where the NOA lists the RRSP deduction limit as $1. The $100K job starts in 2014 so that Jan 2015 is when I think the $18K can be contributed. I believe None is saying the contributions can be happening throughout 2014 as he refers to contributing "approx 18% of the gross of each paycheck into an RRSP ... and not have to wait until the next year to start contributing."

CRA describes an over-contribution as prior years unused contributions + current year contributions > RRSP deduction limit show on latest NOA + $2K. With unused contribution being $0, current year contributions being $18K and latest NOA RRSP deduction limit being $1, it seems to me that $18K > $2001, triggering the over-contribution penalties.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/xcss-eng.html


Cheers


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## Plugging Along (Jan 3, 2011)

I have no idea now either, though an interesting question, is it material enough to matter if one was to wait to start their contribution in Jan following the first year of there career job?

This scenario presented becomes less material under the following probable assumptions
- person Probably worked or had some sort of experience prior to their first year as an 18 year old getting a their real job starting at $100k, without an education, this scenario would be extremely rare, not improbable.... So if they were a dot come whiz at the time, or started their own business, they could just ask their accountant, as it would most likely not be in earned income.
- if the person didn't start in Jan, but rather later in the year as more people's hired later in the year, then one would be waiting a whole twelve months to invest, then would it matter very much. 

My interpretation was that your current year RRSP contribution is based on previous years earned room because that s how the NOA were calulated


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## Guban (Jul 5, 2011)

Eclectic12 said:


> You and I are talking about waiting until Jan, where as I read it, None is questioning the need to wait.
> 
> I am taking the first tax return as 2013, where the NOA lists the RRSP deduction limit as $1. The $100K job starts in 2014 so that Jan 2015 is when I think the $18K can be contributed. I believe None is saying the contributions can be happening throughout 2014 as he refers to contributing "approx 18% of the gross of each paycheck into an RRSP ... and not have to wait until the next year to start contributing."
> 
> ...


I also question the need to wait, and still agree with "none". I will agree that the CRA link you cited seems to support you, but the calendar year that they are referring to is confusing. Go to the T1-OVP link to see how they calculate the penalty for further clarification.

"1) You contributed amounts to your RRSP or your spouse's or common-law partner's RRSP from January 1, 1991, to December 31, 2013, that you did not and will not deduct on line 208 on your 2013 or earlier year returns.
2)A gift was made to your RRSP from January 1, 1991, to December 31, 2013.

If one of these situations applies to you, go to Step 2.
If neither of these situations applies to you, you do not have to complete a 2013 T1-OVP."

As I read it, the contribution (according to "none") is in Jan 2014, and he will deduct it on his 2014 tax return, so situation 1) does not apply, and there is no need to complete the T1-OVP.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/t1vp-eng.html


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## Eclectic12 (Oct 20, 2010)

Guban said:


> I also question the need to wait, and still agree with "none".
> ... I will agree that the CRA link you cited seems to support you, but the calendar year that they are referring to is confusing.
> 
> Go to the T1-OVP link ... As I read it, the contribution (according to "none") is in Jan 2014, and he will deduct it on his 2014 tax return, so situation 1) does not apply, and there is no need to complete the T1-OVP....


I will check the links out later. 

So using the dates from the fictional 18 year old, you are thinking the $18K RRSP contribution is fine in 2014, deducting the $18K RRSP contribution is fine - despite the 2014 RRSP Deduction Limit being $1?

For the deduction to work on the tax return - there's going to need to be a wrong number plugged into the 2014 tax return.
Schedule 7, line 10, which should be the 2014 RRSP Deduction limit is capping the RRSP deduction being taken for that tax year ( which for our fictional 18 year old is $1).

The question is what is CRA going to do when their computers spit out that their number is $1 where the tax payer has plugged in a higher number to take the deduction.


Cheers


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## Guban (Jul 5, 2011)

I believe that assuming no Pension adjustment, and other modifications to the RRSP deduction amount the the 18 yo could put into his RRSP without penalties would be $20,001. The deduction on a tax return is a separate question. On his 2014 tax return, he could only deduct $1 since that was his limit from his NOA shown on the 2013 return. Line 10 of schedule 7 would have $1 on it.

I would never recommend that the 18 yo do this, however. I imagine that there is a significant chance of the taxpayer getting into overcontribution penalties. What happens if he doesn't understand that there is a PA, or that he has an RPP. What if he loses his job, or doesn't make the $100 k he thought that he'd make. Of course, if he was older than 18, I'd definitely go for the TFSA before the RRSP. But you've seen that separate threads before.


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## Eclectic12 (Oct 20, 2010)

Guban said:


> I believe that assuming no Pension adjustment, and other modifications to the RRSP deduction amount the the 18 yo could put into his RRSP without penalties would be $20,001. The deduction on a tax return is a separate question.


That's where I am not so sure ... the NOA calculation, the tax return deduction and the description on CRA's web site of over-contributions all look to me that they line up with "earn the contribution room this year, use it next year".

Bottom line is that anyone who wants to do this should consult CRA and/or a tax professional.




Guban said:


> ... I would never recommend that the 18 yo do this, however. I imagine that there is a significant chance of the taxpayer getting into overcontribution penalties.


The over contribution penalties are the risk.




Guban said:


> ... What happens if he doesn't understand that there is a PA, or that he has an RPP. What if he loses his job, or doesn't make the $100 k he thought that he'd make.


Based on other threads, PAs are clearly not understood ... at least unless the calculations confirm how much it reduces the RRSP contribution room.
You mention several other good points.


Cheers


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## peterk (May 16, 2010)

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/xcss-eng.html



> Generally, you have RRSP excess contributions if your unused contributions from prior years and your current calendar year contributions are more than your RRSP deduction limit shown on your latest notice of assessment, notice of reassessment, or a T1028, Your RRSP Information for 2013, plus $2,000.


Well, this is about EXCESS contribution. And that would seem to indicate that you are in excess if you have deposited in your accounts more than the number written on your latest notice of assessment....

From that wording it would seem you not only have to wait until the following year for your contribution room to "activate", but you have to wait until your assessment is complete?


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## Guban (Jul 5, 2011)

^ That is the link that Eclectic cited isn't it?

It is confusing, but I think that the calendar year they are referring to is the past year. So, to calculate the excess contribution for calendar 2014, use the NOA for 2013 plus a max of $2,000. If you wait until January 2015, then you would use the NOA from the taxation year 2015. I drew this conclusion based on the calculation of penalty using the T1-OVP link I previously posted.

If you file a tax return in time before the end of April, then you would have the NOA well in advance of the next calendar year.


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## Eclectic12 (Oct 20, 2010)

Re: ... calendar year they are referring to is the past year ...

The NOA seems to disagree that it's the past year. 

My 2013 tax return NOA starts with the 2013 RRSP deduction limit, uses 2013 numbers and ends up with "Your 2014 RRSP/PRPP deduction limit" amount A as well as "unused contributions" amount B. 

The note on the back says "unused contributions" amount B plus future contributions made from Mar 2014 to Dec 2014 that exceed "Your 2014 RRSP limit" Amount A may mean the 1% over contribution penalty ... which sounds the same as the link.


So it appears the 2013 NOA is place to go but it is to get the 2014 number which applies to 2014.



Cheers


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## Guban (Jul 5, 2011)

No disagreements. The 2013 NOA is definitely the place to get the 2014 deduction. That is not in question, I believe.

The question is what is the CONTRIBUTION limit! This is a different number than the deduction limit. The extra contributions that are not deducted are shown in amount B as you say.


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## Eclectic12 (Oct 20, 2010)

The way I read it, CRA's web site - it says the deduction limit *is* the contribution limit. Or as most articles/books refer to it, RRSP contribution room.



> Generally, the amount you can contribute to your RRSPs or your spouse or common-law partner's RRSPs, for a given tax year without tax implications is _determined by your RRSP deduction limit._
> 
> *This is often called your "contribution room." *
> 
> Amounts that you contribute above this limit may be considered excess contributions (over-contributions).


http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/lmts-eng.html

The CRA links describing possible over-contributions plus the wording on the back of the NOA for possible over-contributions reinforce the same thing, IMO.

What are the total RRSP/PRPP contributions being compared against to see if the limit has been exceeded? 
... none other than ... the Part A amount of the RRSP deduction limit.



Cheers


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## janus10 (Nov 7, 2013)

Now everyone can see why I am confused. Instinctively, one would think that you could contribute as you earn - I have been employed in group RRSPs and they take a percentage of the income every pay period - obviously I am contributing based on this year's income. And, it just strikes me as strange that you have to wait until the end of the year to contribute when every article you read tells Canadians don't wait until the end of February to make a bulk contribution.

So the language that CRA uses suggests that you have to actually wait until January 1st before contributing against previous year's income.


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## janus10 (Nov 7, 2013)

http://www.advisor.ca/tax/tax-news/over-contribution-retribution-75829

"Of course the rule in the Tax Act is clear. [One is] simply not entitled to make RRSP contributions during [one's] first year of employment in Canada since RRSP contribution room is based on the prior year’s earned income."

So, even when I was in a group RRSP, and was contributing based on current year's income (and I was always allowed to join within 3 months of my first day at the employer), I never asked if they ensured that I had sufficient contribution room or was even employed the previous year.


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## Guban (Jul 5, 2011)

@janus
You don't have to wait until Jan 1 to contribute. A better way for most people is to use the NOA, which should arrive shortly after you file your tax return. (May?) That way the money grows tax deferred for longer. As Eclectic (I believe) has pointed out, however, you need to be careful if your employer is contributing to your group RRSP too. It may generate another RRSP slip and put you offside of your maximum, and give you an excess contribution that may result in a 1% per month penalty.

With regards to the group RRSP, you can join, but you may not be able to deduct the contribution in the tax year of contribution because you won't have any room generated until the following year, after a tax return is filed.

@Eclectic
I am using "contribution" or "contribution limit" in what I would refer to as the "ordinary" meaning, ie to mean what you can add to your RRSP. Your reference indicates "contribution room" which may have a different meaning. Are we being too "wordy" here? I guess there really isn't a limit in any sense of the word. You can put in as much as you want. The only thing is that the government can charge the 1% per month penalty.

The post with the 18 year old was very clear as to the intention, and I still maintain that he is correct, and that your interpretation does not follow the penalty calculation. I reiterate: The 18 yo could put $20,001 on Jan 1, 2015 without a penalty from CRA if he has only $1 of RRSP deduction limit on his 2014 NOA if he is going to make $100k or more in 2015 and he does not have a PA, employer match or so on.

Do you disagree?


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## Eclectic12 (Oct 20, 2010)

janus10 said:


> Now everyone can see why I am confused.


Personally ... I don't like this "Deduction Limit" business but that is what CRA plus the tax forms are using.




janus10 said:


> Instinctively, one would think that you could contribute as you earn ...


Trouble is there's a bunch of variables which can dramatically change what RRSP room is earned, which won't be fully documented until tax return is filed.

Case in point - my co-worker had to wait two years to join the DB pension ... for those two years, he earned something like $11K in RRSP contribution room per year. The first year he joined the DB pension, his PA reduced the $11K down to about $4K. He had no idea for several years that he was no accumulating RRSP contribution room at less than half the rate he had been before.

I'm not sure of the reasons the gov't decided on this setup ... but for as long as I can remember, the writeups have consistently been of contribution room granted based on last year's income.




janus10 said:


> ... I have been employed in group RRSPs and they take a percentage of the income every pay period - obviously I am contributing based on this year's income.


Yes ... the group RRSP and a pension are the only two plans I am aware of that the gov't has allowed an exception for. One is still having their RRSP contribution room earned that year reduced by the contribution through the pension adjustment (PA) but it is being allowed on a same year basis. As I understand it, either types of plan are restricted as to how much can be contributed.




janus10 said:


> ... And, it just strikes me as strange that you have to wait until the end of the year to contribute when every article you read tells Canadians don't wait until the end of February to make a bulk contribution...


Hmmm ... I'll have to check ... the articles I can recall that were talking this way were talking about people who had years of unused RRSP contribution room. 

For example, they might have earned $10K a year, contributed $3K per year so that they are building up large amounts RRSP contribution room that is being carried forward indefinitely (ex. five years x $7K = $35k of RRSP contribution room available). In this case, it's not the current year contribution room but the carry-over from previous years that is recommended to be used.

The points I recall to the articles were that if one had the money:
1) the earlier the contribution was made, the earlier the money would be tax deferred.
2) less stress as the contribution was taken care of at one's convenience.
3) one could take one's time deciding on the investment instead of feeling pressured to jump into whatever was offered just before the deadline.


Cheers


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## Eclectic12 (Oct 20, 2010)

Guban said:


> ... I am using "contribution" or "contribution limit" in what I would refer to as the "ordinary" meaning, ie to mean what you can add to your RRSP. Your reference indicates "contribution room" which may have a different meaning. Are we being too "wordy" here?


If "ordinary" means what the tax payer can put in to the RRSP without fear of over-contribution ... I'm interested in how you see the CRA link "contribution room" as possibly having a different meaning. It did follow the "deduction limit" is often called "contribution room" with the statement that amounts over this limit may be over contributions.




Guban said:


> ... I guess there really isn't a limit in any sense of the word. You can put in as much as you want. The only thing is that the government can charge the 1% per month penalty.


That's where the limit, no matter what one calls it is the sign post that warns of danger ahead. :biggrin:




Guban said:


> ... I reiterate: The 18 yo could put $20,001 on Jan 1, 2015 without a penalty from CRA if he has only $1 of RRSP deduction limit on his 2014 NOA if he is going to make $100k or more in 2015 and he does not have a PA, employer match or so on.
> 
> Do you disagree?


I don't see how an over-contribution can be avoided ... but your point is taken about how the 1% penalty is written up.
Since several sources are contradictory - I'm not sure which would win out.


Cheers


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