Question

It has been 3 years since Rajdeep started his first full-time job. He decided it was high time to start investing and only opened a Registered Retirement Savings Account on January 1, 2024. Since he received an inheritance from his favourite uncle, he decided to use this money thoughtfully and make his first RRSP contribution. He is not part of his company's pension plan. He knows that the formula for RRSP contribution is 18% of the previous year’s earned income. Assume we are January 1, 2024, how much could Rajdeep contribute to his 2023 RRSP account to claim a deduction on his 2023 tax return? Hint: Ignore the $2,000 lifetime over-contribution grace amount and consider carry-forward amounts.

Year RRSP Contribution Limit

2021 $27,830

2022 $29,210

2023 $30,780

2024 $31,560

Year Rajdeep's salary

2021 $85,000

2022 $89,900

2023 $93,000

2024 $99,500

Answer 1

To calculate Rajdeep's RRSP contribution limit for the year 2023, we need to find 18% of his earned income in 2022.

18% of $93,000 = $16,740

However, we also need to consider any unused contribution room from previous years.

Unused contribution room from 2022 is given by the formula:

Unused contribution room = (RRSP contribution limit for the year 2023) - (Actual RRSP contributions made in the year 2023)

Unused contribution room = ($30,780) - (0) = $30,780

Therefore, Rajdeep's total contribution limit for the year 2023 is $16,740 + $30,780 = $47,520

So, Rajdeep can contribute up to $47,520 to his RRSP account for the year 2023.