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RRSP Overcontribution - understanding warning and what to do if I've overcontributed


crystallee
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I'm getting a "Your RRSP contribution exceeds your deduction limit by more than $2,000." warning.  My understanding is that the Situation A should be ok (made-up numbers) since $12,000 < $19,000, but I get the warning, and then when I go to Step 3 > Federal, the amount listed for "20800 RRSP/PRPP deduction (schedule 7)" is the $10,000, not $19,000 as I expected.  Can someone help me understand what I'm missing / where I've gone wrong?

Situation A:

Available contribution room for 2020 from Notice of Assessment: $10,000

18% of 2020 employment income: 0.18*50,000 = 9,000

Total room available as of end of 2020 = $10,000 + 9,000 = $19,000

2020 RRSP contributions: $12,000

 

Also, what if the following situation is true, where I've accidentally contributed more than I have room for since $22,000 > $19,000 (and $22,000 > $10,000)?  I'm reading a bit online about it but am feeling confused about the order I'd need to do things in.  I have no issue with taking the money out of my RRSP and paying tax on it.

 

Situation B:

Available contribution room for 2020 from Notice of Assessment: $10,000

18% of 2020 employment income: 0.18*50,000 = 9,000

Total room available as of end of 2020 = $10,000 + 9,000 = $19,000

2020 RRSP contributions: $22,000

 

Thanks for any advice!

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Hi crystallee.

For Situation A.

The opening eligible RRSP room available is $10,000.

You contributed $12,000.

You have now overcontributed for year 2020 by $2,000.

At this point you calculate the eligibility for year 2021 based on your income for 2020. So that gives you $9,000 as you determined for the year 2021 eligibility. You will now subtract the $2,000 overcontibution and end up with an allowable contribution for year 2021 of $7,000. On your 2021 tax return if you contribute $7,000  you will have a deduction of $9,000. That comes from the 2020 overcontribution of 2k plus the 2021 contribution of 7k.

If you have overcontributed by more than 2k you need to file remove the excess using a specific process so you don't pay tax and don't lose future RRSP eligibility.

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