| • Science | • People | • Locations | • Timeline |
The maximum amount that a person can contribute into an RRSP is known as his RRSP deduction limit. A deduction limit is calculated as 18% of a person's earned income from the previous tax year, minus any "pension adjustment", up to a dollar maximum (currently $14,500). Any RRSP deductions not taken in a tax year are carried forward indefinitely to future tax years. So, for example, if a person's RRSP deduction limit were $8,000 and he only contributed $3,000, the unused $5,000 deduction would carry forward, plus it would be increased by the deduction limit as calculated by the formula above.
After filing a tax return, each tax payer receives a Notice of Assessment from the Canada Revenue Agency, indicating their new RRSP deduction limit.
Examples of financial property that can be used with an RRSP are: mutual funds, shares in a company(stocks), bonds, mortgages and GIC's. Presumably when the RRSP owner retires they will cash in their RRSP's while in a lower tax bracket thereby saving money.
A Spousal RRSP allows a higher earner to contribute to an RRSP in the spouse's name. The spouse can withdraw the funds, subject to tax, after a holding period. If the spouse is at a lower income tax bracket, the spousal RRSP acts as a means of income-splitting to minimize taxes.