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  • Peter Wiesner

RRSP Limits for 2017 to 2020

The RRSP maximum for 2020 is $27,230 less PA (Pension Adjustment)

 (Thus, your 2019 earned income (see below) needs to be $151,278 to maximize this for 2020).

The RRSP maximum limit for 2019 is $26,500 less PA (Pension adjustment).

Thus, your 2018 earned income (see below) needs to be $147,923 to maximize this for 2019).

The RRSP maximum limit for 2018 is $26,230 less PA (Pension adjustment).

(Thus, your 2017 earned income (see below) needs to be $145,923 to maximize this for 2018).

The RRSP maximum for 2017 is $26,010 less PA (Pension Adjustment)

Thus, your 2016 earned income (see below) needs to be $144,500 to maximize this for 2017).

You can contribute 18% of your earned income from the prior year.

Please check your Notice of Assessment for the RRSP amount allowed, and remember you must deduct carry forward amounts which have not been deducted.

What is Earned Income?

Earned income includes salary, taxable alimony, rental income, CPP disability benefits only, net business income, royalties, supplementary EI (not regular EI) which is then reduced by union dues paid, professional fees, employment expenses, tax deductible alimony, business loss, rental losses, and active partner for a partnership loss.  This covers most of the major items. If you need further assistance in determining earned income, please contact me.

RRSP  Catch Up Loans for 2019 Tax Season A Toronto Star article from Money Wise (January 5, 2012) of generally why not to do a RRSP catch up loan. They listed several reasons:1 ) poor market performance last year, 2) Taxpayer had too much debt for credit line and home mortgage, 3) May be better putting funds into other assets, 4) Banks have a ulterior motive for selling RRSP products with transaction fees and interest rate margins/mark up 5) Lack of discipline in applying the tax refund and repaying it to the RRSP loan or other high interest cost debt and 6) loan interest is not deductible. The reality is that RRSP's are a tax earnings account for which you can reduce your 2019 taxable income for the contributions made into your RRSP from March 2, 2019 to March 2, 2020. So if you earn more than $220,000 and live in Ontario this could reduce your taxes by 53.53% on the earnings above $220,000. Thus, for every $10,000 you can get into your RRSP you save in taxes 53.53% or $5,353 at the tax rate. This is essentially a interest free government loan for a long time and for most people beyond the age of 71. So in a big year of earnings, you really want to consider a RRSP catch up loan even if your short of cash. Thus, if you sold a rental property with a large capital gain, had a large capital gain, or have a large bonus which puts your taxable income over $95,259 (tax rate is 43.41%) then a RRSP catch up loan may be for you. Also, if the RRSP loan costs less than another high cost credit card or other debt, then use the refund and pay off higher cost debt which is more than twice the interest cost of the RRSP loan and then you're ahead. The advantages of RRSP's are they act as worst case emergency funds (this is last resort item and TFSA's are better for emergency money), but are great for first time home buyers ($35,000 can come out towards your first time home purchase), or if you go back to school as part of life long learning program, and just to add to your retirement cash flow which is the original purpose of the savings. Remember the tax refund is essentially a government interest free loan for a very long time. Also, when you retire, you may be able to remove the RRSP funds at a lower tax bracket, say 20% and save half the taxes on repayment in 30 years or so. Would you rather pay taxes now or the same or lower taxes in 30 years? I am for the delay! The negatives are that if you invest in the stock market and not sure on the risks of the market, your RRSP returns may not be as you like or had planned. Then consider a portion of your retirement allocation within the RRSP in a GIC in the 1-3 year horizon if your worried about the stock market in the interim. However, most of your portfolio should be in the market within your RRSP on a 3-15 year outlook. Do your stock investing on the outside and keep the RRSP less risky. However, RRSP catch up loans are not for everyone, those under $47,630 in total on line 150 of the 2019 income tax return as you are in the lower tax brackets. RRSP catch up loans are a useful tool in a unusually high income year to delay the tax and prosper.

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