To help brighten our visit to a junior hockey game, my dad invited my precocious little girl cousin to join us at a game. She was a little younger than me – about 10 years old – and lots of fun to be around. Just to give you a sense of her personality, at one point she turned to the rather large-schnozzled man beside us and deadpanned: "Hey mister, is that your nose or are you eating a banana?"
In the standing room section of the North Vancouver Recreation Centre arena we used to watch the fans mill about beneath us in the walkway from their seats to the concessions and washrooms between periods.
Later that evening, between the second and third periods of the game, my little cousin started climbing on the railing, which we, as standing room fans leaned against. It was about 15 feet above the walkway below us, and my dad warned her that she had best stop it, or risk the peril of falling on to the crowd below.
Looking down on the people below she replied: "Oh I'm not worried! Someone will catch me!"
This is sometimes the attitude of some forty-something's I have known over the years.
Someone will catch me. Maybe. Maybe not. If for whatever good reason we fail to, or are unable to save for retirement, someone might in fact catch us. Perhaps a family member will step in, or maybe a government. But chances are we will be better off if we take a good stab at readying ourselves.
In most cases, if you can count on earning less in retirement than you do in your peak earning years, the tax-sheltering offered by a RRSP is a no-brainer. Contribute to one while your income is higher, and you will be better off in the long run.
Your RRSP Deduction Limit Statement – Notice of Assessment
Here are some tips on how to interpret your RRSP Deduction Limit Statement:
First of all, note that your RRSP deduction limit also determines the maximum amount that you and/or your employer may contribute to a Pooled Registered Pension Plan (PRPP) for the year. All PRPP contributions by you and/ or your employer will reduce your RRSP contribution room for the year.
How Much Can I Contribute to My RRSP in 2014?
The maximum amount which you can contribute to your RRSP this year is A - B + C where:
A is your RRSP deduction limit for 2014;
B is your RRSP contributions made in previous years, but not claimed on previous tax returns; and,
C is any unused portion of the $2,000 cumulative lifetime allowable amount of over-contribution you can make without being subject to a penalty tax.
More Information on A (above):
Your RRSP deduction limit is calculated in part by determining your earned income, including net income from employment, business, and rentals, as well as other income such as alimony received, but it not including sources such as investment income.
Your RRSP deduction limit will be reduced by any Pension Adjustments calculated by your employer.
If you purchased past years of pension service, your employer will report a Past Service Pension Adjustment to you on Form T215 - Past Service Pension Adjustment Exempt from Certification. This will reduce your RRSP contribution room for the following year.
On the other hand your RRSP deduction limit will be increased by any Pension Adjustment Reversals calculated by your employer.
More Information on B (above)
You may have chosen not to deduct contributions because your taxable income was low in the particular year or you expected your income to rise significantly in a future year.
It is also possible that you did not deduct these contributions because you did not have sufficient RRSP deduction room.
More Information on C (above)
Although you are able to over-contribute, is you do so in excess of $2,000 cumulatively in you life, you are required to file a CRA T1-OVP return: Individual Tax Return for RRSP Excess Contributions. This return is used to calculate the penalty owing.
If you have been contemplating a yet-to-materialize parachute for your retirement, take an hour or two and sit down with an advisor. It's free to talk, and frankly usually not too complicated to set a plan in motion, be it RRSP, a business sale, or what-have-you.
The information in this article is not intended to provide individualized legal or tax advice. You should obtain professional advice from a qualified tax advisor before acting on it.
Mark Ryan is an advisor in Prince George with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
