By Sheryl Smolkin
To contribute to the Saskatchewan Pension Plan you must have Registered Retirement Savings Plan (RRSP) contribution room. Therefore it is important to understand what “RRSP contribution room” means and how is it calculated.
Your RRSP contribution room is the amount of RRSP contributions you can deduct for income tax purposes in a particular year. For 2012, RRSP contribution room will be the 2012 RRSP deduction limit appearing on the notice of assessment (or reassessment) you receive once you have filed your 2011 income tax return and it has been processed.
The RRSP deduction limit for each year is the lesser of:
- 18 per cent of your previous year’s earned income,* and
- The RRSP dollar limit for the year ($22,970 for 2012).
*Earned income is the annual total of: employment income, net rental income, net income from self-employment, royalties, research grants, alimony or maintenance payments, disability payments from CPP or QPP and supplementary UIC payments.
However, if you belong to a workplace registered pension plan (RPP), your annual RRSP contribution room will be reduced by a Pension Adjustment (PA) representing the value of both employer and employee RPP contributions.
If you do not use up your RRSP contribution room in any year, it is added to the next year’s RRSP contribution room and carried forward indefinitely. When certain kinds of income are transferred to your RRSP such as a retiring allowance or an amount received from a deceased spouse’s RRSP, contribution room is not required.
If you want to calculate your 2012 RRSP deduction limit, use Chart 3 on the Canada Revenue Agency’s website.
The maximum annual contribution you can make to the Saskatchewan Pension Plan is $2,500, even if you have additional RRSP contribution room. You can also transfer an additional $10,000/year from another RRSP to the Saskatchewan Pension Plan.
Since you have already used up RRSP room when you made the original RRSP contribution, you will not need additional RRSP contribution room to make an RRSP/SPP transfer of up to $10,000 each year.