RRSP Overcontribution

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bill
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RRSP Overcontribution

Post by bill » 02 Dec 2017 11:11

I've been playing RRSP catch up for years, and in 2016 decided to finally max my contributions. This gave me a big tax refund, which I immediately dumped into an RRSP. When I looked at my Tax statement, I read the first part that said my RRSP contribution limit this year is $27000, based on 2016 earnings. I didn't scroll down to see that based on a pension adjustment, my actual room is only $17000. I wasn't paying attention, and didn't realize this until today - feeling stupid right now. I also contributed $5K in July, taking me to $22K already. Anyone ever dealt with something like this? Assuming I take out the extra $5K immediately, should I write to CRA and explain the mistake? I'm worried that this is going to be a mess from a tax standpoint this year.

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adrian2
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Re: RRSP Overcontribution

Post by adrian2 » 02 Dec 2017 13:14

You don't need to write and explain, you just need to pay the penalty (1% of the overcontribution in excess of $2k, per month). The form you need to fill is kind of complicated, so make sure you follow the instructions.

As for removing the excess, it's already December; next month you'll get new RRSP room which may stop the penalties, do some estimates.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

bill
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Re: RRSP Overcontribution

Post by bill » 03 Dec 2017 09:35

Thanks. I probably need to call CRA and discuss. What I can't figure out is what happens in 2018. If I leave the $ in the account, does it just reduce my contribution room for 2018? I'm assuming I can't deduct the extra $5k in 2017, then would it reduce my contribution room in 2018 as well?

From what I found, there's a form to allow removing excess contributions without paying tax, but it takes a few months to process.

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adrian2
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Re: RRSP Overcontribution

Post by adrian2 » 03 Dec 2017 11:54

bill wrote:
03 Dec 2017 09:35
What I can't figure out is what happens in 2018. If I leave the $ in the account, does it just reduce my contribution room for 2018? I'm assuming I can't deduct the extra $5k in 2017, then would it reduce my contribution room in 2018 as well?
December 2017 will be the last month in which you'll accrue a 1% penalty for overcontributing.
January 2018 you'll get new contribution room, which means:
- the penalty will stop accumulating,
- the former overcontribution will become a tax deductible contribution (for the 2018 calendar year, tax return to be filed in spring 2019),
- you're back to regularly scheduled programming.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

bill
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Re: RRSP Overcontribution

Post by bill » 03 Dec 2017 12:10

adrian2 wrote:
03 Dec 2017 11:54

December 2017 will be the last month in which you'll accrue a 1% penalty for overcontributing.
January 2018 you'll get new contribution room, which means:
- the penalty will stop accumulating,
- the former overcontribution will become a tax deductible contribution (for the 2018 calendar year, tax return to be filed in spring 2019),
- you're back to regularly scheduled programming.
Many thanks, that sounds like this isn't too big of a hassle.

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adrian2
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Re: RRSP Overcontribution

Post by adrian2 » 03 Dec 2017 15:03

bill wrote:
03 Dec 2017 12:10
Many thanks, that sounds like this isn't too big of a hassle.
T1-OVP will be a bitch to fill out...
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

bill
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Re: RRSP Overcontribution

Post by bill » 03 Dec 2017 15:30

adrian2 wrote:
03 Dec 2017 15:03
bill wrote:
03 Dec 2017 12:10
Many thanks, that sounds like this isn't too big of a hassle.
T1-OVP will be a bitch to fill out...
Thanks. It's separate from tax return, yes? Tax SW won't fill this out for me I assume.

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adrian2
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Re: RRSP Overcontribution

Post by adrian2 » 03 Dec 2017 15:44

bill wrote:
03 Dec 2017 15:30
adrian2 wrote:
03 Dec 2017 15:03
bill wrote:
03 Dec 2017 12:10
Many thanks, that sounds like this isn't too big of a hassle.
T1-OVP will be a bitch to fill out...
Thanks. It's separate from tax return, yes? Tax SW won't fill this out for me I assume.
You're welcome. Yes and yes (I've linked it upthread).
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

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