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Email this1:09 pm
April 6, 2013
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Did not know that. Thanx! How do you know how much to contribute in January before you do your taxes if you don't get your T4's and registered pension contribution receipts until Feb 28 at the latest? CRA said the same thing when I sent in my T1213... make your RSP contributions in January. Can't make the contribution until you know how much you are allowed to contribute.
One can calculate "earned income" from employment income, sales commissions, and so on from one's pay stubs throughout the year, lets say 2016. 18% of total 2016 earned income will be the gross RRSP contribution room, up to the $26,010 2017 maximum, for next year, 2017.
Registered pension plan members need to reduce that gross 2017 RRSP contribution room by the Pension Adjustment (PA) for the pension service earned in 2016.
For defined contribution pension plans, the PA is approximately the employer and employee contributions. Employee contributions will definitely show up on the pay stubs. Employer contributions can probably be calculated from the matching formula. If employer matches employee contributions $1 for $1, then employer contributions equals employee contributions.
For the defined benefit plans, the PA is calculated from the benefit formula. It is around 9 times the earned service. Not sure if earned service (as opposed to the employee contributions) would show up on pay stubs.
I looked into this in the past. The exact calculations, for all the cases, are more than I can fit in one or two sentences. The full details and calculations are in T4084 Pension Adjustment Guide.
4:15 pm
February 24, 2015
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So make an estimate, reduce it by some amount to be safe, and then wait until you get your T4 sometime in February, especially for the Pension Adjustment. Why is it so critical to max your RRSP contribution in January?
11:01 pm
February 17, 2013
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2of3aintbad said
So make an estimate, reduce it by some amount to be safe, and then wait until you get your T4 sometime in February, especially for the Pension Adjustment. Why is it so critical to max your RRSP contribution in January?
Isn't. Have never done it nor was even aware of it. I mentioned CRA. They wrote a note saying I should contribute in Jan so they could process my T1213 earlier, and maybe sheltering a few grand in the RSP for a couple extra months would save pennies in tax. Only reasons I can think of. Thanx for the info but I dont think it's worth the hassle of figuring out pension adjustments etc. It was just pointed out I didn't have to wait until March. March is fine for next year. Down to the wire so won't be able to over contribute for 2018 as won't have any employment income to deduct it from for 2019. Just want to keep it simple.
8:34 am
April 6, 2013
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Maxing out the RRSP contributions in January instead of March will shelter two more months of interest in the RRSP. Depending on the stock, doing so could also shelter one more quarterly dividend in the RRSP.
For example, the record date of Bank of Montreal's first dividend of the year is in February. Current dividend is about 4% per annum of share price. A quarterly dividend is about 1%. Contributing in January instead of in March would shelter an extra 1% of the contribution in the RRSP.
How much money that is depends on how much RRSP room one has. Members of pension plans may not earn much RRSP room each year. One acquaintance didn't spend much time worrying about his RRSP. He explained that the PA from his defined benefits pension plan left him with something like $500 of RRSP room per year.
The RRSP contribution deduction can be applied against any taxable income, not just employment income. That includes taxable dividends and taxable capital gains.
One can also contribute now and not use the deduction for the contribution right away until years later.
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