Investing in a RRSP: How it works?

How Much Can I Contribute to My RRSP This Year?

Your RRSP contribution limit for the current year is calculated as 18% of your earned income from the previous year, up to a maximum annual limit set by the Canada Revenue Agency (CRA). To find the maximum contribution amount for the year, visit the CRA website.

Good to Know

• Unused Contribution Room Carries Forward: If you don’t use all your RRSP contribution room in a given year, the unused portion carries forward indefinitely.
• Pension Plans Affect your limit: If you’re part of a defined benefit pension plan, your RRSP room will be reduced by a pension adjustment.
• Contributions made in the first 60 days of the year can be used towards the previous years or current year’s contribution room.

Where can I find my RRSP contribution limit?

You can find your RRSP contribution limit which will also include your unused contribution room from previous years on your most recent Notice of Assessment from the Canada Revenue Agency (CRA).

How can I contribute into my RRSP?

Once you’ve determined the dollar amount you wish to contribute, the next step is to proceed with making the contribution into your RRSP. You have three options to contribute funds into your RRSP: Lump sum cash contribution, pre-authorized contribution plan (PAC) and in-kind contribution. Let’s explore the choices.

• Lump sum cash contribution

It involves taking an amount in cash from a non-registered account or bank account and contributing the amount into your RRSP. Once the funds appear in the account, the investor can the invest them.

• Pre-Authorized contribution plan (PAC)

Not everyone can make a large lump sum contribution into their RRSP. Another option is setting up a pre-authorized contribution plan (PAC), which is an easy way to save. You can establish a pre-authorized contribution plan into your RRSP account on a regular basis. With your instructions, we can withdraw an amount from your bank account and contribute into the cash holdings of your RRSP. 

Automatically contribute to your RRSP account on a weekly, bi-weekly, monthly or even quarterly basis for as little as $25.00 by sending us instructions via our secure message centre or by calling us.

For assistance with establishing a PAC to contribute into a mutual fund, please contact us by phone.

• In-Kind contribution

Did you know that cash RRSP contributions are not the only type of contribution you can make?  If you are short on cash but have investments held in a non-registered or TFSA account, you can contribute that investment to a RRSP and take advantage of the deduction. The transfer can be done in-kind (stocks, ETFs, mutual funds, bonds) with the condition that the securities are RRSP eligible.

Note that if the security contributed to your RRSP comes from a non-registered account, it will be contributed at the fair market value.  Even though you are not selling the security, the CRA considers that it’s a deemed disposition (it’s been sold) and if the market value is higher than the average cost base than any gain is subject to capital gains tax. 

In the opposite scenario, if you contributed a security whose value is less than the average cost base, you forfeit the capital loss.

In that scenario, selling the security to create the capital loss and then contributing the cash proceeds might be a better option. Just remember that you need a 30-day period to elapse before repurchasing the same security or else you won’t be able to claim the capital loss. 

How can I track my contributions at NBDB? 

Easily keep track of your RRSP contributions made during the previous year and the first 60 days of the current year with NBDB