Shani Dion-Thibaudeau

By Shani Dion-Thibaudeau

February 4, 2019

Financial Security

5 things to know before contributing to an RRSP for the first time

You’ve decided that an RRSP will be the main investment vehicle for your retirement. That’s a wise choice for your future, and also for taking advantage of immediate tax breaks. Only thirty-five per cent of Canadian households contribute to an RRSP according to Statistics Canada, meaning that financial planning for retirement is not yet an established practice throughout our society.

Here are some details you should know before making your first contribution.

1. The first contribution

 You must have filed an income tax report the previous year and declared your eligible income in order to make your first contribution to an RRSP. If your income is solely derived from property (investments, royalties, capital gains), you can’t contribute.

2. Deadline for contributing

You have until the 60th day of 2019, i.e. March 1, to contribute to your RRSP for the fiscal year of 2018.

3. Minimum age for contributing

There is no minimum age for contributing to an RRSP. If you have eligible income, you are entitled to contribute. However, you must be age 18 or over to contribute over $2,000. You can contribute to your RRSP until December 31 of the year you turn age 71.

4. Maximum contribution

You can contribute up to 18% of your income from the previous year or up to the annual applicable ceiling for the current year. This year the ceiling is $26,230. That means you must earn close to $145,500 to take advantage of the annual maximum.

5. Excess contributions

If your contribution exceeds the annual ceiling by $2,000, you won’t be penalized. Otherwise, you must pay a 1% tax per month on any excess contributions. On the other hand, if your contribution is less than your maximum contribution, the difference can be deferred to another year.

To find out more about your RRSP, contact a financial security advisor.

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