The Ideal RRSP Contribution

How do I calculate my ideal RRSP contribution?

You must have RRSP contribution room in order to contribute. This can be found on your Notice of Assessment from CRA last year so locate this as a first step. Make sure you didn’t miss filing a tax return in any of the 10 prior years to ensure you maximize your RRSP room. If you are over 18, you can contribute up to this allowable contribution room plus make a $2,000 over-contribution. You can deduct the whole amount on Line 208 of your tax return to reduce your taxes this year, or you can carry forward the undeducted amount and use it next year if your income is higher or if you are not taxable. A tax specialist can help you with the “what if” scenarios.

Your ideal contribution is one that will maximize the income tax savings while meeting your goal for retirement and keeping within your current budget restraints. The greatest tax savings result when you contribute as much as you can to reduce your taxable income in your current tax bracket. For example, if your taxable income for 2013 is $50,000, you'll be paying 22% federally on the last $6,439 (because the 22% bracket starts at $47,561). Contributing $6,439, if you have available room and can afford to, will eliminate all federal taxes at the 22% rate, as well as the provincial taxes on that income. Be sure to keep in mind your long-term goal of generating a retirement income when making the decision about how much to contribute.