- April 6, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Exploring RRSP Contribution Room and New Employment Situation
Hey there,
As someone fairly new to the world of finance, I decided to take a more aggressive approach to catching up on my financial goals at the beginning of this year.
In early March, I noticed that my RRSP contribution room for 2024 was around $27K. Without hesitation, I swiftly contributed $23K to bridge the gap, knowing that my work RRSP contribution would amount to $2K for the year, resulting in an expected total contribution of $25K out of the $27K limit for 2024.
However, an unexpected job change occurred recently, allowing me to now contribute approximately $7K of my annual income into my RRSP, with my company matching it 100% through a DPSP. This brings my 2024 RRSP contribution projection to $30K ($23K + $7K).
This change puts me in the dilemma of potentially surpassing the contribution threshold and facing penalties from the CRA if I don’t take action. I am concerned about potentially missing out on part of my new employer’s generous match to avoid this situation.
How can I possibly reduce the $23K contribution I made to my RRSP earlier this month? Any assistance would be greatly appreciated!
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>Is there anything i can do to reduce the $23K i put into my RRSP this month?
1. Ask your RRSP provider to reverse the contribution and then contribute the amount you are confident will keep you within your contribution limit. (Maybe hold some back until the end of the year when you can fine tune the contribution.)
2. Withdraw the amount that will put you over your contribution limit. The following page explains 2 ways to withdraw contributions (that you haven’t yet deducted) so that you won’t end up paying tax or losing contribution room.
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/making-withdrawals/withdrawing-unused-contributions.html
I just went through an over contribution situation myself. Your RRSP provider most likely won’t “reverse” your contribution. The options are typically for you to complete the T3012A form to avoid taxes being withheld as a previous person indicated. But as previously mentioned, wait times for this to get completed are lengthy. When speaking to the CRA last week, I was told that current times to address the T3012A route would be approx 10 weeks. And if you end up actually over contributing while you wait for the T3012A, you’ll end up paying a penalty of 1% per month. The second option would be to simply have your RRSP provider withdraw the amounts you’ve determined, but there will be a withholding tax. The withholding tax depends on the amount you withdraw from your RRSP (between 10-30%). They will issue a T4RSP. Keep in mind that you are able to over contribute up to $2000 with no penalty implications.