RRSP deduction strategy | General financial discussion | Discussion forum

I think you can only claim it against employment income, making the claim impossible against investment income.

I believe, however, that there is a form you can get from CRA that you can fill out down the road when the $1500 has to be withdrawn, to show that it was already taxed (i.e. not claimed), so as to avoid being taxed twice on it. For that purpose, you should probably make sure it always stays in a separate account, and hang on to the paper work. I'm not sure how this works for any profits gained in the interim, but would assume they would still get taxed upon withdrawal, so you would need to be able to show it clearly separated from other RRSPs.

I'm sure someone will correct me if I'm wrong about this.

kanaka said

Have you considered withdrawing your RRSP and place it into TFSA?

OP indicated his TFSA is maxed. Although it is appealing to withdraw from the RRSP because of his/her tax situation now, if the money is not needed, I might wait until 65 to convert to a RIF and get the pension tax credit. But definitely do not claim the unused contribution since there is no harm in deferring. The situation may be different in the future.

Annual contribution limits are determined based on earned income. If you look at the T1 you will see that amounts deducted on line 208 are from "total income" (line 150). No idea why only $3 difference - maybe the "wizard" is in error (I do my taxes on paper forms).

yuj said

I presume from the last fuller yr of work 6 yrs ago, about 8000 deduction limit was calculated to be allowed to claim against income for the following year, (but it never seemed useful to make a claim that following year or any of the last subsequent years due to little income). The overcontribution fell within the 2000 overcontribution allowance, and it was made at least 6 years ago and lumped together with all rsp contribution/investments.

I think the idea (and certainly the greater tax reduction) is to claim RSP contributions against employment income, but I think one can still claim contributions if you are within your deduction limit just to get the tax free compounding benefit, (which is what got me into rsp contributions since I was 20 yrs old with continuinng part time income and no immediate tax reduction benefit).

It seems the rsp wizard shows that claiming 1300 has no effect on 2014 tax owing but claiming 1500 does reduce it by a big $3. (there was an odd day of work income last year).

I wonder if using the overcontribution up now is the save time effective way to deal with the overcontribution , pay the rsp redemption income tax in the future vs filing the appropriate form for withdrawal of the overcontribution with no withholding tax now or within the future?
Income not expected to be higher in the future, but wonder if tax rates will increase for investment /rsp income in the future.

I'm not sure I understand the exact situation. Are you sure you still have an RRSP overcontribution, Yuj?

You may have overcontributed $1,500 at the time of contribution. But, if you have since earned an additional $8,000 of RRSP contribution room, then that $1,500 is no longer $1,500 of overcontribution. Instead, it may now be just $1,500 of unused RRSP contributions.

RRSP contributions are entered as a deduction on line 208. The deduction can be applied against any income, including interest, taxable dividends, and taxable capital gains. Confirm that when you use the RRSP wizard, that the $1,300 or $1,500 appears on line 208. A $1,300 deduction should reduce one's taxes by at least $300.

OK. Let's start again, then.

Does this mean that you have, in the past, contributed $8000 which you have not yet claimed as a deduction?

And you're wondering if you should claim any of it against 2014 income?

If you are looking at your 2013 Notice of Assessment, it's telling you what Norman1 is saying. The only thing I would add is that if you made more contributions after the first 2 months of 2014, they would not be reflected in the $1500 so you could also deduct them, up to your total $8K limit. Schedule 7 is a handy little thing, along with your NOAs, to keep your RRSP situation straight.

Lapse of comprehension is an age thing (my bias), as I do notice younger folks tend to prefer to input into The Machine instead of understanding the process. My adult kids want my help with their taxes so they have to sit around my dining room table with the paper forms and I supervise. It's funny, most of them will never vote Liberal again only because every year things are going along fine and then McGuinty's "temporary" Health Care Premium comes along at the very last line to scoop another $750, and by now every year they know it's coming and the cursing starts. Hilarious! But I do notice I seem to be "supervising" a growing circle of their friends who take advantage of my help instead of paying to have their tax returns done and it's interesting to see how they get so engaged when I answer their questions about this line or that surtax or that credit..........they get much more interested in politics all of a sudden, so I suspect the powers-that-be are quite happy to encourage (eventually mandate?) that folks just keep feeding electronic templates.

yuj said
...
So in this case the wizard shows
no tax effect in claiming the unused 1500,
no tax effect in claiming the unused 1500 and an additional contribution of ~1450
$3 less tax if claiming the unused 1500 and an additional contribution of nearly ~1500
and greater reductions up to additional contribution ~6500.
....

That does not sound right.

Deducting the unused $1,500 of RRSP contributions should reduce taxable income (line 260) by $1,500. There should be a drop of federal taxes payable of at least $1,500 x 15% = $225.

Similarly, deducting the unused $1,500 and an additional contribution of ~$1,450 should reduce taxable income by $2,950. There should be a drop of federal taxes payable of at least $2,950 x 15% = $442.50.

There should also be a drop in provincial taxes payable.

Is taxable income on line 260 dropping by the appropriate amount when the RRSP contributions are claimed?

There's no hurry to deduct one's unused (undeducted) RRSP contributions.

They don't expire and can be deducted in future years, even after one has turned 71 and had transferred the RRSP's to RRIF's or annuities.

One strategy is to contribute, to use up any remaining RRSP contribution room, before transferring one's RRSP's to RRIF's. The contribution can then be deducted over future years. This is from Manulife Financial article Reducing taxes in retirement:

Another strategy aimed at increasing deductions applies if you are turning age 71:

• Make a lump sum final contribution to your RRSP, if you have unused room, before converting it to a RRIF. The resulting deduction does not have to be used in that year’s tax return but instead can be used at any time in the future – whenever it is most beneficial in reducing taxable earnings in retirement.