- May 17, 2024
- Posted by: legaleseblogger
- Category: Related News
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# Over Contribution Dilemma: Seeking Ways to Avoid Penalties
I recently realized that I unintentionally over contributed to my RRSP by more than $2,000, totaling around $10,000. This mistake occurred because I mistakenly believed that I could use the contribution room allotted for 2024 in 2023. In an attempt to rectify this error, I promptly withdrew the excess amount in February/March of 2024. However, I am now concerned about potential penalties for over contribution.
## The Conundrum of Over Contribution: Exploring Solutions
In order to address this issue and potentially avoid penalties, it is crucial to understand the rules and regulations surrounding RRSP contributions and overages. One possible solution could be to utilize the contribution room designated for the following year, 2024, to offset the excess contribution made in the previous year.
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There will be a 1% monthly penalty for every month it is over-contributed. You may be able to contact the CRA and file a penalty relief form, they may or may not accept the justifications.
If the withdrawal penalty is higher than the over-contribution penalty then it is cheaper to just leave it, assuming future headroom will cover it all or most of it within say, the current year. Unlike with tfsa’s, rrsp withdrawals don’t grow back, it’s a permanent loss.
Pay very close attention to the yearly rollover timings, and headroom increases, to avoid additional over-contributions. We are just a tax number to the government, not a human or family with personal circumstances or feelings/emotions or hunger, it’s pure business to them. The written justifications will have to be good ones for them to care\accept them… Good luck!
Why would you think you could use 2024 contribution space way back in 2023?
If you were over (based on your 2022 NOA) in Feb/Mar 2023, then you will pay the 1% penalty per month. You need to complete the T1-OVP. If you haven’t filed the T1-OVP already for 2023, then there is an additional penalty for waiting so long.
Now for 2024, assuming you earned enough new space, then you would no longer be over as of Jan 2024. Just don’t contribute more for 2024 unless you are sure there is space.