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The first question you might have about RRSPs is, “How much can I contribute?” But you also need to know about who can contribute, the best time to contribute and what to do with unused contribution room.
The Notice of Assessment that the Canada Revenue Agency (CRA) sends to you each year after processing your tax return shows your RRSP contribution limit, including any unused contribution room from previous years. Generally speaking, you are allowed to contribute up to 18% of your previous year's earned income to the maximum amount set each year by the Income Tax Act and Regulations, plus any unused contribution room carried forward from prior years.
As long as you have contribution room, you can make an RRSP contribution until the end of the year you turn age 71.
If you have contribution room, you can contribute at any time – either in a lump sum or by making periodic contributions throughout the year. The deadline for making a contribution that will affect your tax bill any given year is 60 days after the end of that year. The date usually falls around March 1 of the following year (subject to change because of leap years or if the 60th day falls on a Saturday, Sunday or public holiday). The government has also extended the deadline when natural disasters have occurred that could have interfered with people making their RRSP contributions (like the Quebec ice storm in 1997-1998).
The key to a healthy RRSP is to start early and establish a regular savings schedule. The longer your RRSP contributions are invested, the longer they will have to grow. And investing smaller amounts regularly reduces the stress of coming up with a lump sum, or worrying about what the markets are doing when you put a lump sum in your RRSP.
You have a couple of options if you don’t have the cash on hand to contribute the full amount you’re allowed: You can carry your unused contribution room forward, or you can take out a loan.
You're allowed to carry forward any unused contribution room indefinitely. It simply gets added to your RRSP contribution limit, and you can use it at any time before the end of the year you turn age 71.
Depending on your personal financial circumstances and goals, you may want to look at the options for taking full advantage of your contribution room sooner rather than later. One such option is borrowing to contribute to your RRSP and then using your income tax refund to repay the loan.
Try the RRSP loan calculator to see how this strategy might be right for you, and talk to your advisor to find out whether an RRSP loan is right for you.