What to do when you overcontribute to your RRSP + MORE Jun 22nd

To buy a house in the next five years, writes financial expert Jason Heath, Lauren should direct-transfer some of her maxed-out RRSP cash into the new tax-sheltered First Home Savings Account.

A tax-free savings account (TFSA) is a fantastic way to earn money on your savings, without having to pay tax on those earnings. Registered by the federal government, TFSAs are available to Canadians aged 18 and older. Unlike a registered retirement savings plan (RRSP), you cannot deduct contributions to your TFSA from your income tax, so you will have to pay income tax on that initial money. But as long as you adhere to TFSA guidelines, you won’t pay taxes on any earnings made within the TFSA, not even when you withdraw it. Plus, you can withdraw as much as you want at any time.

There’s a specified limit to how much money you can put inside a TFSA. For 2023, the annual TFSA contribution limit is $6,500, and there is a lifetime maximum of $88,000 for those who were 18 or older as of 2009. The good part is that any unused contribution space and any amount that you withdraw from your TFSA becomes available to you as contribution room in the next calendar year.

Even though the word ‘‘savings” is in the name, it’s actually better to think of TFSAs as investment accounts, rather than simply a savings account…

Ask MoneySense
I overcontributed to my RRSP by accident, and I am looking for some advice on how to deal with it. I contributed $3,550 to my 2022 RRSP in October 2022. I then forgot I made this contribution and again in February 2023 I made a $3,550 contribution.

What options to I have to address the over contribution? Can I count my February 2023 contribution towards my 2023 tax return?

—Ryan

How to fix an RRSP overcontribution

This is the time of year that people tend to find out about inadvertent overcontributions to their registered retirement savings plans (RRSPs). If you want to know where you stand, an income tax notice of assessment will show your:

RRSP deduction limit for the yearUnused RRSP contributions previously reported and available to deduct this yearAvailable RRSP contribution room (#1 minus #2)

If you have more unused RRSP contributions than you have RRSP deduction limit, that means you have an RRSP overcontribution.

What happens if you overcontribute to your RRSP?

A taxpayer is allowed to overcontribute to their RRSP by up to $2,000, Ryan…

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