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Can I Claim RRSP Contribution in Future Years?

When you’re planning for retirement, an RRSP is a crucial tool you can use. RRSPs let you reduce your taxes and save for the future, helping you get a head start on your savings if starting early in your career.

Finances can be confusing, so how do RRSP contributions work, and when can you claim your contributions? With help from a financial expert, you can understand RRSPs and how they work.

Continue reading to learn more about RRSPs, including whether you can claim RRSP contributions in future years.

Dice-looking letter blocks spelling out RRSP.

What Is an RRSP?

An RRSP is a registered retirement savings plan for retirement saving and investing, available to employees and self-employed Canadians. You add pre-tax income into an RRSP and let it grow tax-free until you withdraw it. After taking out your savings, you pay tax on it at a marginal rate.

There is no minimum age limit to set up your RRSP. However, if you’re under 18, you will need parental consent. The latest you can set up an RRSP is at the end of the year you turn 71, as long as you meet certain requirements (being a Canadian citizen, filing a tax return, etc.).

There are several types of RRSPs, including:

  • Individual RRSP: An individual RRSP is set up for a single person.

  • Spousal RRSP: A spousal RRSP provides benefits for your spouse & offers tax benefits for both of you.

  • Group RRSP: A group RRSP is for a company’s employees, funded by payroll deductions.

  • Pooled RRSP: A pooled RRSP is an option if you have a small business, offering benefits for employees & employers.

How Do RRSPs Work?

You can contribute a certain limit to your RRSP every year. This rate is approximately 18% of your earned income in a year, set to a maximum limit dictated by the Canadian Government. According to the Government of Canada, this rate is currently $29,210 for 2022, expecting to rise to over $30,000 in 2023.

You can contribute more but expect to pay a 1% monthly tax penalty when you surpass your RRSP limit by over $2,000.

What Are the Benefits of RRSPs?

Besides saving money for retirement, RRSPs have several benefits for your finances. These benefits include reducing taxes as you work and the ability to withdraw your money at any time or age.

A Way to Reduce Your Taxes During Your Working Years

If you have an RRSP, it can come in handy with your taxes. You can deduct your contributions against your income! The growth of your investment is protected from taxes—returns are exempt from any capital gains tax, dividend tax, or income taxes.

RRSP contributions delay the payment of taxes until retirement, meaning your tax rate will be lower than when you are working. The Canadian Government provides this tax deferral to Canadians to reduce the number of people relying on the Canadian Pension Plan in retirement.

Withdrawals at Any Age

With an RRSP, you can withdraw money at any time or age. Whatever you take out of your RRSP is taxable in the year you removed it—unless you use the money for specific reasons, such as your education.

When you’re claiming RRSP contributions, can you do this in future years?

Digital drawing of a tax file on a clipboard, a calculator, and coins.

Can You Claim RRSP Contributions in Future Years?

While you can contribute to your RRSP any time before the tax deadline (March 1st) of that year, you don’t need to have that deduction in that same year. You can claim deductions on some, all, or none of your contributions each year.

You don’t need to immediately deduct your RRSP contributions. In fact, it can be beneficial to wait for future years, helping you maximize your tax savings.

Are Unused Contributions Available in Future Years?

You can contribute up to the maximum amount (around $30,000) to your RRSP each year, but what if you don’t have enough to reach that limit in a specific year?

Your RRSP carries forward, meaning the total amount you can contribute counts the previous years you didn’t contribute. What this means is yes, you can contribute unused RRSP amounts in future years.

You can even contribute to your RRSP when you have retired without any earned income. You can use unused RRSP contributions from previous years and any funds you have to add to your RRSP.

If you’re curious about your RRSP deduction limit, you can look up your most recent notice of assessment.

Plan for Retirement With an RRSP

An RRSP can help you save for retirement, reduce taxes and grow your wealth. It’s important to know how an RRSP works so you can maximize your contributions. Speaking with a professional can help when you have questions about your RRSP.

Contact us at DeHaan Private Wealth if you have any RRSP questions. We can help assist with your questions and concerns regarding RRSP contributions, deductions, and anything else you may be wondering about.

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