February 9, 2010, 5:29 am

2010 RRSP Contribution Limits, RRSP Contribution Deadline and other RRSP FAQs

by: The Financial Blogger    Category: RRSP
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I’ve been pretty busy with the RRSP campaign where I work. Since the beginning of January, I have been meeting with my clients to deposit their RRSP contributions.

Therefore, I guess you will probably meet with your financial advisor for your 2010 RRSP contribution in the upcoming weeks. So I thought of gathering a few RRSP facts and FAQs:

How much can I contribute to my RRSP for 2009?

–         The general rule is 18% of your declared income in 2008.

–         However, if you have pension plan, you must take a look at your Federal Notice of Assessment (the document sent to you by the government after you filed your taxes. It will show you maximum contribution available for your RRSP.

What is the maximum RRSP contribution for 2009?

–         The maximum is 18% of your declared income up to $21,000.

–         If you are contributing for 2010, the RRSP contribution limit is $22,000.

–         You can exceed this amount by $2,000 but you will not get a tax return from this amount. Any RRSP contribution beyond the $2,000 overcontibution allowed will be penalized by a 1% tax monthly.

How can I contribute by using my unused RRSP contributions from past years?

–         The total amount of your unused RRSP contributions is shown on your Federal Notice of Assessment.

–         You are allowed to contribute this amount in total and get the full tax return (but make sure to read the following point before doing so).

Should I use all my RRSP contributions in one year?

–         You should be careful about your tax brackets and contribute as much to your RRSP in order to get the highest tax returns possible.

–         To take a look at your tax bracket, you can use Ernst and Young Tax Table and RRSP tax saving calculator (it’s free!). I suggest you play around with different RRSP contributions to see how much you will receive in tax returns.

Should I take an RRSP loan to maximize my RRSP contribution?

–         RRSP loans are effective if you plan to pay it back within 24 months. If you are to take a 5 year RRSP loan, you are better off starting a systematic investment in you RRRSP and forget about your tax return this year.

–         The interest paid on an RRSP loan is not tax deductible.

–         Some strategies include an RRSP loan to maximize your tax return while it serves to pay back the loan. This is interesting when you think about your retirement (long term strategy).

–         An RRSP loan can also be used for the Home Buyer Plan (HBP). You take a big RRSP loan, get the tax return and withdraw your RRSP under the HBP rules (so you don’t get taxed) to pay back the RRSP loan. Therefore, you receive the RRSP contribution tax return right away and this could help to increase your cash down or pay for other expenses (moving, lawyer fees, painting, etc.).

What is best: RRSP or TFSA?

–         If you think about your retirement and you wish to get a tax return, the RRSP contribution is the best option.

–         However, if there is a possibility of withdrawing the money within the next 3-5 years for a specific project, you are better off with the TFSA.

–         When you calculate the comparison between RRSP contribution vs TFSA contribution for retirement, it all comes back to the same thing.

–         For more info, you can read this great article about TFSA Vs RRSP

Which kind of investments can go into an RRSP account?

–         Almost all kinds of investments (certificate of deposits, bonds, mutual funds, stocks) are allowed.

–         You are not limited to the Canadian market anymore (there used to be a 30% maximum rule for international equities).

Got an RRSP question?

If you have other questions, please fee to post a comment and I will add your questions and my answers into this post.

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Comments

You might already have lots of questions about RRSP as an financial planner!!

A few others should not hurt 😉
If I wait until I have more money to make larger RRSP contributions, instead of making small contributions now, will it amount to the same? Should I contribute in the beginning of the year or throughout the year?

It was a difficult year for me. Although my income is good, I do not have ready cash available to invest in an RRSP. What should I do?

Thanks!

I have an unrealized loss (for less than 3k) in my RRSP. Should I realized the capital loss even if I still don’t have any capital gain realized to offset with? How long do I have to report my capital loss in my tax filing?

Thanks for the free calculator 🙂 !

I don’t talk with my financial planner at Desjardins because I usually don’t understand the products that she proposes :S I prefer to talk with my accountant, she explains very well and never tells me that «I should discuss this with my accountant regarding my last taxes reports» (an answer my financial planner told me too many times… how can she sell people financial products without trying to understand their whole financial situation?

That would be my question 😉

@ Jack, you should take a look at your marginal tax rate (see the links from Ersnt & Young inside the post).
You are better off doing a systematic investment every pay check. If not, chances are that you won’t have the money to fully contribute if you wait at the end of the year.

@Mama zen,
If your financial planner doesn’t explain correctly, ask her again. If it doesn’t work, switch for another planner 😉
Life is too short and your finance are too important to have to deal with clowns!

Your accountant should not be the person to explain financial products as it is not its specialty.

Hope this helps!

by: The Financial Blogger | February 9th, 2010 (3:59 pm)

@ Sofia,
Tax losses can’t be realized and applied to capital gain when they come from a RRSP account. Therefore, there is no point of selling a losing investment unless you really think you can’t get your money back!

@ Guylaine,
you have 2 options: the rrsp loan and the systmetic investments. I will actually explore both strategies in a upcoming posts (later this week 😉 ).

cheers,

TFB.

Looking forward to your next posts!

Thanks!

Also, my friend told me that I should have invested in Solidarity Fund QFL RRSP… but before Dec 31, 2009. Now it’s too late!

Do you know a bit about this product ? Thanks!

QFL, huh? not a big fan!

you get a huge tax credit (up to 30% more than your normal tax return). however, you are stuck with several disadvantages:

#1 you can’t move your fund around (or withdraw) unless you are retired (65).

#2 the money is used for start-up and to save companies, hence this is very risky.

#3 funds don’t show great returns (3% since 1985), not really good compared to small cap indexes or funds…

better forget about the additional tax credit and concentrate on a proper asset allocation and investment strategies 😉

hum… I bought QFL last december and have a direct withdraw on my pay every 2 weeks :S my priority was to improve my tax credits because I have an income property, and also because I dont have much money aside to put in my RRSP.

I also have my pension with my employer, wich is very «safe and traditionnal» as they say, they withdraw 18% of my income automatically on every pay.

How much does it cost to make an appointment with a financial planner not associated with a financial institution?

by: The Financial Blogger | February 10th, 2010 (9:50 am)

@ Mama Zen,

Independant financial planner are very costly (it could easily be $1,000 for a full financial plan). However, there are good financial planners in our banks 😉

It’s like everything else, you have to shop around and do a few meetings before finding the right person.

Thanks for the answer. As an canadian citizen, can I invest 100% of my contribution in a foreign fund (for example US fund or European fund)? Are there limits or restrictions?

@ Sofia,

There used to be a 30% maximum rule but you can now have 100% of your portfolio in foreign equities. However, I do not suggest that you invest all your money on international market. The Canadian market offers great investing opportunities!

[…] Financial Blogger presents 2010 RRSP Contribution Limits, RRSP Contribution Deadline and other RRSP FAQs posted at The Financial Blogger, saying, “I guess you will probably meet with your financial […]

What is the last day to redeem rrsp for 2009 tax year? eg. is there a first 60-days rule as with contributions? Thanks.

@mama zen,

You’re going to pay for financial advice one way or the other.

The advantage of going with a fee-only planner is that there is zero conflict of interest. And if it’s for a non-registered account (ie. not an RRSP or TFSA), you can deduct those fees on your income tax return.

“Free” financial advisors are paid on commission that comes out of your investment, so it’s in their best interest to sell you something which pays them more.

Does that mean all financial advisors are greedy and unethical? Of course not, but why take the chance if there’s another option available?

http://www.moneysense.ca/2009/11/01/where-to-find-a-fee-only-financial-planner/

Waw thanks for the advices TFB and Erick! 🙂 Yes I agree this should be one of my priorities for 2010… «shopping a financial planner!». I had one with my life insurance company 7 years ago… after we bought a life insurance plan, we never heard a word from him again. Add to this that I don’t really understand what my actual FP at Desjardins tells me (and that she doesn’t want to consider my whole financial situation)… up to today I can’t really say that I had good experiences with FPs!

I registered to a conference held by my employer «bureau de la retraite» (retirement office??? sounds too funny to be right lol!). I’ll try to get some references there…

Erick, you say : «“Free” financial advisors are paid on commission that comes out of your investment, so it’s in their best interest to sell you something which pays them more.» Is a commision fee partially based on product performance on market would be a good idea? I mean, everyone has to bring money home one way or another, but I think this, without linking totally commission fee on product performance, would be a win-win for the client and the FP… yes or no?

I’ve never heard of commission being tied to product performance, but it’s an interesting idea.

Finding an advisor you trust to recommend products that are appropriate for you is critical to achieving your long term investment goals.

Here’s a list of questions you should ask potential advisors before you hand over any of your hard-earned money:

http://www.fpsc.ca/fpw/10-questions-ask-your-planner

I’d also ask for their opinion on index mutual funds/exchange traded funds. Since these are less expensive investments to own, you get to keep more of your money invested. If an advisor is willing to recommend these, it’s a good indication that they have your best interests in mind.

Best of luck in your search!

by: The Financial Blogger | March 3rd, 2010 (9:35 am)

Woha thanks to both of you guys ! I obviously now have much stuff to read and no excuses to procrastinate on this file anymore 😉 thanks!!!

Can RRSP deductions be legally withheld for any period in time?

I work for a large company and while my RRSP deductions are made each pay period, the last 3 payments have not made it into my investment account. I was told that there was a process change and that my deductions will be posted within 30 days of the end of the month that they were deducted. As a result, my July 15th, July 30th and Aug 15th deductions are out in the ether somewhere. This does not sound right? Can anyone point me in the right direction on this?

Thanks!

by: The Financial Blogger | August 18th, 2010 (2:23 pm)

I guess that as long as the amount deducted on your pay check correspond to the tax amount related to your RRSP contribution for the year, you won’t have any problem.

make sure both match!

Thanks – and that is something that I’m also looking into. I was more curious about the delay between the deduction from my pay and the deposit to my account. I didn’t think that an employer could legally hold an employee’s funds for 30 – 45 days without permission. Maybe I’m wrong on that but it doesn’t seem right. Any thoughts on where I might find that info?

by: The Financial Blogger | August 19th, 2010 (2:41 pm)

@Curious,

odd enough, I would start with your HR department. By challenging them on what they are doing, they may try (or not!) to explain the reasoning behind it.

good luck!

Can I withdraw from my RRSP for the Home Buyer’s Plan if I haven’t finished paying off my RRSP loan? Cna I only borrow the same amount as what I’ve paid back?

THX!

by: The Financial Blogger | October 5th, 2010 (9:37 am)

Hello Lisa, you can do the HBP without paying off your RRSP loan. Banks can’t take legal liens on registered investment 😉

by: Roger Loomis | November 30th, 2010 (3:29 pm)

I’m glad the RRSP limit for contributions is higher than the American limit for 401k plan contributions but it could still be higher. Particularly for those that are near retirement and want to save an additional sum of money in anticipation of using it soon.

What happens when the rebate from an RRSP contribution is larger than the taxes paid on this years taxable income? Does the person receive a cheque from CRA for the difference?

Can I defer taxes to the following year using the following RRSP strategy based on the “first 60 day” rule?:

– January, 2012 – withdraw $14,999 from my RRSP for the 2012 tax year at 10%
– Jan/Feb, 2012 – use the proceeds to help contribute $14,999 to another one of my RRSP’s and claim against income for the 2011 tax year earned at a combined tax rate of 40%

By my calculation this would defer $3000 of my total income tax bill until 2013 (40%-20% x $14,999). I am considering this as I am anticipating a dip in income in 2012, and it would provide cash in hand taxable at a lower rate the following year. This is of course assuming that I don’t plan to otherwise use the available room under my contribution limit.