RSP Overcontribution Help

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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banker
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RSP Overcontribution Help

Post by banker »

In top tax bracket...over contributed by $8000.00 ... penalty is now 1% per month or $80.00.

It seems if a withdrawal were to occur it would be taxed heavily.

Is it best to leave this over contribution in the RSP and just wait as over the
next 3 years there would be contribution room again....

It seems to me its better just to pay the penalty...any thoughts?? What am I missing??

J
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Re: RSP Overcontribution Help

Post by Bylo Selhi »

banker wrote:What am I missing??
1. You don't have to take the withdrawal of an overcontribution as income if you do it properly.

2. RRSP Contribution/Over Contribution Questions

3. Rev Can out looking for old RRSP Overcontribution Penalties
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optionable68
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Re: RSP Overcontribution Help

Post by optionable68 »

RSP guidelines allow for a $2000 over-contribution.

If I am 70 years old, with ZERO available contribution space:
1/ Can I contribute $2000 to my RSP (of course without taking the tax deduction)?
2/ How is the over-contribution dealt with before or after converting to a RIF to make sure I'm onside?
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Re: RSP Overcontribution Help

Post by AltaRed »

My understanding is the overcontribution limit was designed primarily to accommodate errors during one's lifetime of making contributions and deductions. AFAIK, you have to bring your contributions back into line before you run out of contribution room. The optimum time to do that is the year after they retire when they have contribution room from the last year of earned employment (which is what I did).
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Re: RSP Overcontribution Help

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optionable68 wrote:RSP guidelines allow for a $2000 over-contribution.

If I am 70 years old, with ZERO available contribution space:
1/ Can I contribute $2000 to my RSP (of course without taking the tax deduction)?
2/ How is the over-contribution dealt with before or after converting to a RIF to make sure I'm onside?
...adding a little to AltaRed's reply: there is a strategy to consider

Some 70 year olds, if they are still working, decide to intentionally contribute 18% of their expected income into their RRSPs in December, prior to converting to a RRIF. They'll pay a one-month over-contribution penalty, but can deduct the amount in the T1 for the following year. (no penalty of course if the over-contribution is only $2,000)

If you expect to have 'earned income' in the future, then you will earn some additional contribution room and thus will be able to deduct it in future years.
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Re: RSP Overcontribution Help

Post by izzy »

DavidR wrote:
optionable68 wrote:RSP guidelines allow for a $2000 over-contribution.

If I am 70 years old, with ZERO available contribution space:
1/ Can I contribute $2000 to my RSP (of course without taking the tax deduction)?
2/ How is the over-contribution dealt with before or after converting to a RIF to make sure I'm onside?
...adding a little to AltaRed's reply: there is a strategy to consider

Some 70 year olds, if they are still working, decide to intentionally contribute 18% of their expected income into their RRSPs in December, prior to converting to a RRIF. They'll pay a one-month over-contribution penalty, but can deduct the amount in the T1 for the following year. (no penalty of course if the over-contribution is only $2,000)

If you expect to have 'earned income' in the future, then you will earn some additional contribution room and thus will be able to deduct it in future years.
So what happens if you are over 71 and contribute to a spousal RRSP (younger spouse)? Can you double up on the $2000? Of course its just a prime example of legalized ageism anyway......! :)
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Re: RSP Overcontribution Help

Post by Dejavu »

IIRC if you overcontribute with no contribution room and will not ever have any room then:
1/ you have no deduction for the contribution
2/ you will be taxed at your marginal rate upon withdrawal
It's a double whammy with no upside, Dejavu
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Re: RSP Overcontribution Help

Post by adrian2 »

izzy wrote: 17 Mar 2017 17:22So what happens if you are over 71 and contribute to a spousal RRSP (younger spouse)? Can you double up on the $2000?
One side of your "double up" is always available, no $2k overcontribution required.

Once you turn 71, the only forbidden thing is to have an RRSP of your own. You can still contribute to a spousal one, you can still deduct contributions, and you can still accumulate new contribution room.
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Re: RSP Overcontribution Help

Post by izzy »

adrian2 wrote: 18 Mar 2017 08:40
izzy wrote: 17 Mar 2017 17:22So what happens if you are over 71 and contribute to a spousal RRSP (younger spouse)? Can you double up on the $2000?
One side of your "double up" is always available, no $2k overcontribution required.

Once you turn 71, the only forbidden thing is to have an RRSP of your own. You can still contribute to a spousal one, you can still deduct contributions, and you can still accumulate new contribution room.
Yes,that's the ageism I was referring to :D
Of course it's more than compensated for by the pension income deduction and easier pension splitting so there's really little to complain about -unless you continue to work and have an older spouse I suppose but even then tax deferral doesn't mean much when the "grim reaper" is in sight :(
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Re: RSP Overcontribution Help

Post by optionable68 »

Dejavu wrote: 17 Mar 2017 23:35 IIRC if you overcontribute with no contribution room and will not ever have any room then:
1/ you have no deduction for the contribution
2/ you will be taxed at your marginal rate upon withdrawal
It's a double whammy with no upside, Dejavu
This makes perfect sense. Thank you Dejavu
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Re: RSP Overcontribution Help

Post by Dejavu »

I have just discovered my error of buying my wife's RRSP contribution TWICE! :oops: (Last January 1st and again this last 8th December.) The amount is approx $2,300 each time. My understanding is, I have these options:
1/ do nothing... CRA will allow a $2k overpayment buffer, and the excess, $300 will attract a 1%/ mth. charge. As there will be new contribution room for the year 2022 does this mean there will only be a one month charge?
or
2/ try to get the CU to refund the second payment or at least the excess?
or
3/ fill out all the forms required such as a T1-OVP, and a tax deduction waiver for withdrawing the excess.
Have any of you dealt with this before, and can share your wisdom? Dejavu
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Re: RSP Overcontribution Help

Post by StuBee »

I did something similar many years ago. An overpayment of a few hundred dollars for about 3 months. When I completed my return, I wrote a letter of apology with an explanation of my error. Nothing ever happened.

I presume that the worse that can happen is a 1% charge on 300$. I would ignore it.
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Re: RSP Overcontribution Help

Post by Dejavu »

Thank you StuBee, that sounds ok by me.
Assuming I still have your attention, may I take this opportunity to thank you for your Frontline efforts and for the continual medical updates you tirelessly provide the forum, very much appreciated, Dejavu.
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Re: RSP Overcontribution Help

Post by freedom_2008 »

It also happened to me once many years ago (RRSP with TD Waterhouse). I called TDW as soon as I realized the mistake and they just took the overcontributed amount out, no form needed and the amount and correction was not in the contribution slip issued late, just like the mistake never happened.
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Re: RSP Overcontribution Help

Post by Dejavu »

I emailed the Caisse pop. and they will not change the receipts at all.
I have asked if they would remove the excess, and they are looking into it.
freedom 2008 I think you were very fortunate regarding your outcome. The form: "2021Simplified Individual Tax Return for RRSP Excess Contributions" is four pages long. I do hope that wont be necessary.
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Re: RSP Overcontribution Help

Post by timbr »

I accidentally overcontributed in 2020. The first contribution was made in January and then again on March 1. I didn't realize this until I filed my return in June (the deadline was extended in 2020). Duh.

I withdrew the excess in June/2020 and filed a TI-OVP the following January. This was revised by the CRA around March/2021 because apparently March 1,2020 is considered to be part of February and this increased 1% penalty by one month's worth. The penalty was wasn't that much so it probably cost them more to revise it. In Aug/21 I received a review letter requesting a T1043 and associated receipts. I just received a response last week from the review letter that they are satisfied for the moment. The overcontribution was completely my mistake, but was more than a bit of a hassle. You can be sure I won't do that again.
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