Rule changes taking effect this year substantially raise the limits on how much most Canadians can put into Registered Retirement Savings Plans before the Feb. 29 deadline for claiming a credit on their 1991 taxes.
For people without an employer pension plan, the new limit is 18 per cent of their 1990 earned income, to a maximum of $11,500. For taxpayers who do belong to a pension plan, the maximum is reduced by a figure that appears on their 1990 T4 form (see sample calculation, left). Last December, Revenue Canada sent letters to all taxpayers who are eligible to make an RRSP contribution, setting out their individual allowable 1991 RRSP limit.
Other important changes are:
• Taxpayers who cannot make use of their full RRSP contribution limit for 1991 in the current year may carry the unused portion of
EARNED INCOME $26,551 AFTER UNION DUES - $398 (BOX 14-BOX 44); $26,153 18% OF EARNED INCOME; $26,153 x 0.18 $4,708 AFTER PENSION ADJUSTMENT (BOX 52) RRSP CONTRIBUTION LIMIT: $4,708 -$1,879 $2,829
their allowable contribution forward, making additional payments up to the limit at any time in the next seven years. Most financial advisers say that making a full RRSP contribution as early as possible every year is the best way to maximize retirement savings. But the new choice is useful if unexpected events, including job losses, make contributions impossible.
• In a measure designed to protect people who mistakenly contribute more to their RRSP than the law allows, another new rule permits each taxpayer to over-contribute up to $8,000 during their lifetime without penalty. Although Revenue Canada will require that income tax be paid on that initial over-contribution, it will also permit interest on the investment to accumulate tax-free within the RRSP until it is withdrawn or claimed as tax credit in the future. Contributions above the permitted limit, however, will be subject to penalties of as much as one per cent a month on the amount of over-contribution above $8,000.
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