A registered retirement savings plan (RRSP) allows you to save some of your hard-earned cash in a tax-free account. Contributions you make to your RRSP grow in a tax-advantaged environment, in a plan that is registered with the Canadian government. However, you need to know the yearly RRSP contribution limit to avoid possible penalties.

A lot of people get confused between contribution limit and deduction limit. While the contribution limit determines how much cash you may pay into your RRSP, the deduction limit determines how much of that cash can be deducted from your income taxes.

RRSP Contribution Limit vs Deduction Limit

Every year the Canadian Revenue Agency (CRA) sets the maximum limit you can contribute to your RRSP. If in any year you are not able to contribute up to your full limit, you can carry the excess of your limit to the following years.

On the other hand, the deduction limit only takes into account the limit from the current year. If you are contributing your full limit for this year, plus C$5,000 from the previous years, you may only deduct up to this year’s contribution limit. 

If you have unused contribution limits from previous years, you can carry them forward indefinitely. You can then add the unused limits in future years when you can. However, you may only deduct the contribution limit of the current year from your tax claim.

How Much Is the RRSP Contribution Limit for 2023?

The CRA sets the RRSP contribution limit every year, usually adjusted for inflation, with a small increase. The limit is determined by the lesser of 18% of your income or the dollar limit set by the CRA. For 2023, the dollar amount RRSP contribution limit is C$30,780. 

The contribution deadline is March 1st, 2024, for the 2023 taxation year. The percentage limit for RRSP contributions has not changed for a number of years. While the dollar amount RRSP contribution limit has grown steadily.

RRSP Contribution Limit Yearly 

• 2022: C$29,210
• 2021 C$27,830
• 2020 C$27,230
• 2019 C$26,500
• 2018 C$26,230
• 2017 C$26,010
• 2016 C$25,370
• 2015 C$24,930
• 2014 C$24,270

Who Can Contribute to an RRSP?

In general, you can contribute to your RRSP until December 31 of the year you turn 71. While you can contribute to your spouse’s or common-law partner’s RRSP until December 31, of the year they turn 71.

Contributing More Than the RRSP Deduction Limit

If you contribute more than C$2,000 over your deduction limit you may owe a 1% monthly penalty. The penalty is charged for each month the excess cash is on your RRSP account. You may avoid the 1% monthly tax if the contributions were Qualifying Group Plans, or if you withdrew the excess amounts before the month’s end.

What Can I do with an RRSP?

The contributions you make to your RRSP can be used to make a variety of investments. To invest in a wider spectrum of assets the account should be set up as a Self-Directed RRSP. The CRA refers to these accounts as a Trusted plan.

Standard RRSPs have a range of traditional investments that include the following:

• Money, GICs, and other deposits
• Most securities listed on a designated stock exchange, such as shares of corporations, warrants, options, and units of exchange-traded funds and real estate investment trusts
• Mutual funds and segregated funds
• Canada Savings Bonds and provincial savings bonds
• Debt obligations of a corporation listed on a designated stock exchange
• Debt obligations that have an investment-grade rating
• Insured mortgages or hypothecs

You can also invest in gold and silver bars and coins when they are issued by the Canadian Mint. You must buy them directly from the Mint, or from a Canadian resident corporation, which includes banks, trusts, and registered dealers.

Other Uses for My RRSP

The best use of your RRSP funds may be to invest for retirement in a tax-free environment. However, there are also a couple of things you can use these funds for if the necessity arises.

• RRSP Home Buyer’s Plan
• RRSP Lifelong Learning Plan  

Home Buyer’s Plan

The Home Buyer’s Plan allows you to borrow up to C$35,000 to buy or build your first principal residence. If you are married or in a common-law partnership, you can each borrow up to C$35,000 for a total of C$70,000. The sum must all go to buying the same first principal residence.

You don’t pay taxes on the money you withdraw under the Home Buyer’s Plan as long as you pay back the money within 15 years. You must pay back into your RRSP, a new RRSP, or a Pooled Registered Pension Plan. The 15-year period starts two years after the calendar year you made the withdrawal.

Lifelong Learning Plan

The Lifelong Learning Plan (LLP) allows you to withdraw up to C$10,000 per year over 4 years up to a total maximum of C$10,000 from your RRSP. You must be enrolled in a full-time course (part-time if disabled) to make these withdrawals. 

You cannot use these withdrawals to pay for your children’s education, as this is contemplated under the registered education savings plan. You must pay back the money you withdraw within 10 years. Typically, you will pay back 10% each year. All withdrawals are tax-free as long as you meet the requirements. 

The CRA will send you a yearly LLP statement of account showing withdrawals, money paid back, how much you still have to pay back and how much you must pay for next year. You must make an online request to receive the statement of account.

RRSP Contribution Limit Summary 

• The RRSP contribution limit for 2023 is C$30,780, or 18% of earned income, whichever is less.
• Your annual contribution limit consists of this year’s RRSP contribution limit plus any room from previous unused limits.
• Your deduction limit is set by the current year’s contribution limit.
• If you have a company pension plan your RRSP contribution limit is reduced.
• If you did not make full use of your contribution limits in previous years, the CRA allows you to carry forward the unused limits indefinitely.
• Your notice of assessment shows both your annual contribution limits and carry-forward contribution room. 
• You may contribute to your RRSP until December 31, of the year you turn 71.

Wrapping Up

RRSPs allow for a wide choice of investments and include precious metals. You may want to invest in gold through stocks, or you may prefer holding physical gold bullion in the form of bars or coins.

There are several advantages to holding gold in your RRSP. The next step is finding a reliable and trustworthy gold bullion dealer. Several companies operate in Canada, offering professional and knowledgeable services, you can read their reviews here.