Question

Harry has just opened a Registered Retirement Savings Plan (RRSP) with his bank and is wondering, which of the following statements is correct with respect to RRSP contributions?

a.Contributions made during the current year and within 30 days of the end of the current year, must be deducted in the current year.

b. There is no penalty for making contributions that are in excess of available deduction room.

c. Contributions made during the current year can be deducted in any subsequent year.

d. Contributions in excess of available deduction room cannot be deducted in the current year or in any subsequent year.

Answer 1

Ans: The correct option is Contributions made during the current year can be deducted in any subsequent year.

Rationale-

A retirement savings and investing vehilce plan for the people in Canada who are employees or Self employed is called a Registered Retirement Savings Plan (RRSP). The money placed in this plan is pre tax and grow under the plan without any tax implications. The amount is taxed at marginal rate at the time of withdrawal.

The RRSP contribution made in the current year can be deducted in any subsequent year. This statement is true because, In general RRSP contributions are allowed to be deducted in tax return in same year when the contribution is made but you can choose to defer the deduction if you think that in future your income will be higher and you will be taxed at higher marginal rate so you can deduct that deferred contribution in the year of higher income to reduce your tax liability.