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If by mistake, I exceed the contribution limit to my RRSP, can I withdraw it from my RRSP, to avoid paying penalty? e.g Let us say my RRSP room is 18k, but I contributed 22k, so any contribution in excess of 2k, will be taxed at 1% per month. To avoid this, should I withdraw the excess money from my RRSP?

  • Is this excess contribution made in 2015 or 2016? – DJClayworth Mar 29 '16 at 17:37
  • I made it in Jan 2016. – Victor123 Mar 30 '16 at 19:12
  • Have you exceeded your 2015 RRSP limit or your 2016 RRSP limit? – DJClayworth Mar 30 '16 at 19:51
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Overcontributions made after the calendar year are not usually a problem. This is because while contributions made in Jan and Feb can be counted towards the previous year, they do not have to be. This appears to be what has happened in your case.

If you had an RRSP limit of $18,000 for 2015, and in Jan 2016 you contributed $22,000 to your RRSP, then it is perfectly legal to claim $18,000 of that in 2015 and $4000 in 2016. The extra $4000 is never counted against your 2015 limit and so is not an overcontribution.

If your 2016 limit is going to be less than $4000 then you will eventually have an overcontribution problem in 2016, and if you think that's likely you should sort this out now. But for most people that's pretty unlikely.

  • Very excellent point. Note that I think you still have to declare your contribution for 2015, just not claim it. I think. – ChrisInEdmonton Mar 30 '16 at 21:50
  • Great answer. I got the notice of assessment, and the over contribution is subtracted from next years' contribution room (line B), so I don't need to pay penalty. – Victor123 Apr 18 '16 at 14:07
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Intuit has a pretty good write-up on this subject.

As you noted, you are allowed to exceed your limit by $2000 (though this overcontribution is not tax-deductible). Also, your contribution room accumulates. So, you may be able to contribute $18k for the 2015 tax year, but if you have unused space from previous tax years, you can make use of that, too.

If you discover you have indeed overcontributed, you may be eligible for a waiver. The CRA looks kindly on honest mistakes. Consider talking to a tax accountant, and then calling up the CRA and discussing it with them.

If you are not eligible for a waiver on the excess, you need the form T1-OVP. This lets you declare the excess contributions and pay the tax on it. You also need to withdraw the excess from your RRSP and may need to provide evidence of this withdrawal.

Again, strongly consider talking to an accountant and to the CRA (who are surprisingly polite and helpful on the phone). 1% penalty per month can quickly get expensive and now's the time to ensure you have your ducks in a row.

  • Thank you. I should call CRA after I file my 2015 return,correct? I called them now and an auto reply told me that i have not filed 2015 yet. SO I guess I need to file first and then call later. – Victor123 Mar 29 '16 at 15:40
  • Honestly, I'd call them now and follow the prompts to get through to an actual person. Your situation is a current concern, even without having filed the 2015 return. – ChrisInEdmonton Mar 29 '16 at 15:58
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    Presumably this was an overcontribution in 2015, which means it has already accrued as much penalty tax as it is going to. Assuming that you have some 2016 contribution, you may as well leave it in there now. Count the extra as 2016 contribution made on Jan 1. – DJClayworth Mar 29 '16 at 17:36
  • I made it in Jan 2016, but does not the rrsp year for 2015 extend all the way to feb 29,2016? – Victor123 Mar 30 '16 at 19:12
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    (I believe) contributions in January of 2016 can be used for either 2015 or for 2016, but you have to declare the contribution in 2015. – ChrisInEdmonton Mar 30 '16 at 19:14

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