RRSP Test Yourself Answers

1. The deadline for RRSP contributions for the 2015 tax year is March 1, 2016.

FALSE. The RRSP contribution deadline is always 60 days after the end of the previous year if you want to be able to claim the deduction for the previous tax year. So, for 2015, the deadline is February 29, because it is a leap year.

2. If you want to make a contribution for 2016, you must wait until after the 2015 deadline.

FALSE. A contribution made in the first 60 days of the year can be applied against your 2015 income or any income you earn in 2016 and beyond. You get to decide when to claim the deduction.

3. If you’re turning 71 in 2016, you must make your contribution before the end of the year.

TRUE. If you are turning 71 in 2016, this is the last year in which you may contribute to your own RRSP since you must convert your RRSP by December 31.

4. People over the age of 71 do not have RRSP contribution room.

FALSE. While you’re not able to contribute to your own RRSP (because you can’t have one any more if you’re over age 71) if you have a younger spouse, and you continue to have earned income, you can contribute to a spousal RRSP up until your spouse turns 71.

5. You must be over 18 to contribute to an RRSP.

FALSE. This rule applies to TFSAs and has raised some confusion around RRSPs. Anyone who has earned income, a social insurance number and who files a tax return can contribute to an RRSP up until the end of the year they turn 71 (or their spouse turns 71 in the case of a spousal plan). A child can have an RRSP.

6. There’s no point in making an RRSP contribution if you aren’t paying much tax.

FALSE. If you make a contribution when you don’t have to pay much or any tax don’t claim the deduction. You can do so later when your income and your tax rate go up and get a bigger bang for your buck. If you think your income will never go up, an RRSP may not be for you. But if you expect your income to go up, making the contribution and holding the deduction until later will get you saving now and saving on taxes later.

7. You can contribute up to $24,930 for 2015 to an RRSP.

FALSE. You can contribute up the lesser of 18% of your earned income from 2014, or the maximum annual contribution limit, which is $24,930 for 2015. If you belong to a company pension plan, your RRSP contribution limit is reduced by a pension adjustment or PA. The PA represents the value of any pension benefits accruing from participation in a registered pension plan or deferred profit sharing plan.

8. The best place to find your contribution limit for 2015 is on your 2014 Notice of Assessment.

TRUE. Your Notice of Assessment shows both your 2011 contribution limit and any unused contribution room you may have built up. Can’t find your Notice of Assessment? Call the TIPS number (blue pages in your phone book under “tax services”); have your SIN and last tax return handy.

9. If you go over the contribution limit, the tax man will let you claim the deduction the following year?

FALSE. Trick question. As long as you’re over 18, you have a $2,000 lifetime over contribution allowance to help manage slip-ups. You can claim the deduction for this overcontribution in future years. However, if you go over the $2,000, you’ll get hit with a wicked penalty of 1% per month. So do the math before you contribute.

10. You need to have cash on hand to make an RRSP contribution.

FALSE. You can contribute a security, like a mutual fund, stock or GIC you already own to a self-directed RRSP. The contribution is equal to the fair market value of the security when you stick it into the RRSP. The security is deemed to have been disposed of – meaning that it’s treated as if you SOLD it to the RRSP — at time of contribution, and this can have tax consequences.

 

If you don’t have the cash handy to contribute, borrowing always makes sense so you don’t miss out.

FALSE. Borrowing to contribute to an RRSP only makes sense if you meet ALL of the following three conditions:

you’re in the highest tax bracket, AND
you can pay off the loan within one year AND
you can make monthly contributions to your 2016 RRSP.



RRSP catch-up loans are a great way to put a whack of cash into an RRSP.

FALSE. No no no no no no no. Go read this: Booo! Hissss! to Catch-Up Loans http://gailvazoxlade.com/blog/archive...