RRSP Contribution Deadline – Everything You Should Know

The Registered Retirement Savings Plan is known by the acronym RRSP. It is tax-deductible. In other words, the monetary contributions that you make under the RRSP plan can be used to lessen or reduce your taxable income. You may also get tax refunds.

This tax-deferred scheme mainly aims at savings for retirement. Under the RRSP, your contribution or savings can grow yielding compound interest. You gain further as this income accrued through interest is tax-free. The RRSP secures your future. 

What are RRSP Contributions?

Under the RRSP rules, when a person withdraws money from it, this (money withdrawn) is considered taxable income though there are some exceptions to it. These exceptions are:

1. Buying a home under the Home Buyers’ Plan 
2. A Lifelong Learning plan allows one to borrow money or take a loan, in other words, from the RRSP. It can be interest-free and also tax-free in some specific cases. 
3. One can convert an RRSP to an annuity fund to withdraw money at any age before attaining the age of 71.

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What’s The RRSP Contribution Deadline?

There is a deadline for a contribution to the RRSP corpus. For example, the tax year for 2021 income and tax deductions (i.e. January 1 to December 31 calendar year) are : 

1. March 2 to December 31, 2021
2. January 1 to March 1, 2022

Note: The above module is known as the “first 60 days rule” (i.e. 60 days past December 31 of each tax year) which implies that any contributions to RRSP made in the first 60 days of the year must be claimed on the tax return for the previous year.

The last day of RRSP contribution to an avail tax rebate for the previous year is on March 1 (or February 29 during a leap year).

What is The RRSP Contribution Limit?

The contribution limit to RRSP for the 2022 tax year is usually a savings of up to 18% of the income. This, however, is not universal as all RRSP contributors have different limits. 

The reason for this is the fact that RRSP contribution is carried forward from one year to another year. As a result, the RRSP contribution varies in individual cases as it is adjusted annually based on income and the accumulation of unused deposits.

In a way, this system helps one to enhance savings and tax breaks throughout the earning years. 

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Why Should You Make an RRSP Contribution Before The Deadline?

There is a practical reason for this. One should not cross the RRSP limit. Exceeding this limit means one may fall on the higher income limit that attracts tax payments. Subsequently, payment or contribution made before the deadline helps you from this tax payment. 

One should always try to avoid falling into the higher tax bracket. A deduction from income (in other payments to RRSP before the deadline) reduces your income thus helping you avoid paying higher taxes. To reap the benefit of tax-free savings, one should always pay before the deadline. 

How Does The RRSP Deadline Impacts Your Taxes?

This is a point to ponder. It impacts your taxes. Let us have a look at how this can happen. 

One receives the following two separate receipts for the contributions: 

1. Contributions made between March 2 and December 31, 2021
2. A separate receipt for contributions between January 1 and March 1, 2022. 

One can claim both amounts for the 2021 income tax return filed. Hence, if the contribution is made in the first 60 days of 2022, it would be prudent to wait to file taxes until one receives the second tax receipt.

Though one has to have the document of having contributed in the first 60 days of 2022 on your 2021 taxes, one does not need to apply them as a tax deduction. One can carry the amount forward to your 2022 tax return.

This carry-forward feature of the RRSP is one of the reasons why you should pay your contribution before the deadline. 

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RRSP Withdrawal Rules

The RRSP withdrawal rules are quite simple. The last date of contributing to the RRSP is December 31 when the contributor attains the age of 71 years. Following are the two major withdrawal rules that one can select at the age of 71:

1. Lump-Sum Withdrawal is Allowed: This is a major benefit but it entails taxation as the money you get is substantially high. As a result, the taxation will be on the sum total of money you have received. 

2. One Can Buy an Annuity: On withdrawing a large sum of money from the RRSP, one is allowed to purchase an annuity to ensure that it generates regular income. Rule-wise, one does not have to pay tax on buying an annuity and the regular income generated by it.

What are Spousal RRSP Contributions?

Such contributions are meant for the spouse. Under this rule, a couple is allowed with the benefit of a large income disparity. This can substantially reduce the tax burden. The reason is that one of the spouses who earn more will be liable for higher taxation while the one earning less, will have far less burden. 

This, under the RRSP, is termed the “income splitting.” Another feature of it is that the person earning on the higher side can reap the benefit of an immediate tax break provided by the RRSP contribution. 

Interestingly, on attaining the retirement age when the RRSP contribution money is withdrawn, it is taxed based on the lower-income earner (the spouse). 

In Conclusion

The RRSP contribution perhaps is the most important factor that all should keep in mind for an assured flow of income after retirement generated from savings over the years. The tax savings further helps them in real income. 

It is also very much beneficial for the spouse as he/she (i.e. spouse) also gets included in the RRSP contribution scheme. The spouse can also withdraw from this contributory fund with rules applicable in this field.