RRSP OverContribution, April 17, 2006
Most taxpayers know that an RRSP must be matured by December 31 of the year in which the annuitant turns age 69. It may make sense to make an RRSP contribution in that year (say, 2006), before maturing the RRSP, equal to the contribution room available (see 2005 assessment notice) plus the contribution room for 2007 because of “earned income” in 2006. For example, if the person has $100,000 of earned income in 2006, he/she could make an extra $18,000 RRSP contribution in, say, December, 2006, prior to maturing the RRSP. Therefore, there would be an excess contribution for the month of December, 2006 but, the 1‰ per month penalty would end next month as you'd be entitled to make the deduction in January, 2007. The penalty would be $160 (1‰ times $18,000 minus $2,000 a $2,000 overcontribution may be made without penalty). The taxpayer will be able to deduct the $18,000 in 2007.
For further information see VTN Monthly Tax Update Seminar, Issue No. 294.
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