How does an RRSP carry-forward work?
Your RRSP room carries forward, meaning the amount is cumulative. So, 18% of your earned income for the previous year, up to the current year’s maximum contribution limit, becomes your RRSP room for the year. For 2024, the maximum new RRSP room a taxpayer can earn is $31,560 for those with at least $175,333 of earned income in 2023. This gets added to any previously unused RRSP room from the past. For 2025, the maximum is $32,490, requiring income of $180,500 or more.
Interestingly, your RRSP room becomes available retroactive to January 1 upon filing your 2023 tax return.
If you are a pension plan member, whether it is a defined benefit (DB) or defined contribution (DC) pension, your T4 slip will include a pension adjustment (PA) that will calculate a reduction in your RRSP room for the following year. So, your 2024 pension enrollment reduces your 2025 RRSP room. This is done to ensure that a pension plan member does not have an unfair advantage to earn tax deferred retirement income over someone without a pension.
Don’t double count, though
In your case, Lorraine, I want to caution you to make sure your understanding of your RRSP room is accurate. If your 2023 notice of assessment (NOA) says you have $25,000 of available contribution room for 2024, you probably do not have an additional $31,560 of RRSP room. If the NOA in question is for 2022 and shows your 2023 RRSP room, that may be reduced by any RRSP contributions you made in 2023 or by a pension adjustment. So, just be sure you are not double counting.
If in doubt, log in to the Canada Revenue Agency (CRA) My Account portal, or call the CRA at 1-800-959-8281 to confirm your 2024 RRSP room.
Interestingly, if you make your 2024 RRSP contribution in early 2024 based on your estimated new RRSP room, even though you cannot deduct it until next year, you have to claim it on your 2023 tax return. This is because you claim RRSP contributions when made, even if they are not deducted until a future year.
Contributions made in the first 60 days of the year get reported on your previous year’s tax return. So, contributions made up to and including February 29, 2024, get reported on a 2023 tax return. You do not have to deduct an RRSP contribution either, even if you have sufficient room. Claiming that the contribution was made and choosing to deduct that contribution are two different things.
Contributing a large amount to your RRSP
A case in point may be your example, Lorraine, of contributing a large amount like $55,000 all in one year. If your income is $75,000, and you deduct $55,000 all in a single year, you would only have $20,000 of taxable income.
