How does an RRSP carry forward work?
Your RRSP room rolls over, meaning the amount accumulates. So, 18% of your last year's earned income, up to the current maximum contribution limit, becomes your RRSP room for the year. In 2024, the new maximum RRSP room a taxpayer can earn is $31,560 for those with at least $175,333 in earned income in 2023. This is added to any previously unused RRSP room. In 2025, the maximum amount is $32,490, requiring an income of $180,500 or more.
Interestingly, your RRSP room will be available starting January 1 when you file your 2023 tax return.
If you are a member of a pension scheme, whether it is a defined benefit (DB) or defined contribution (DC) pension, your T4 slip will include a pension adjustment (PA) which will calculate the reduction in your RRSP room for the following year. Therefore, your 2024 pension enrollment reduces your 2025 RRSP room. This is to ensure that a member of a pension scheme does not have an unfair advantage of earning a tax-deferred retirement income over a non-pensioner.
Don't count twice, though
In your case, Lorraine, I want to caution you to make sure your understanding of your RRSP room is accurate. If your 2023 notice of assessment (NOA) says you have $25,000 of contribution room available in 2024, you probably don't have another $31,560 of RRSP room. If the NOA in question is for 2022 and shows your RRSP room for 2023, that may be reduced by any RRSP contributions you made in 2023 or by pension adjustments. So, make sure you don't count twice.
If in doubt, log into the Canada My Account (CRA) portal or call CRA at 1-800-959-8281 to confirm your 2024 RRSP room.
Interestingly, if you make your 2024 RRSP contribution in early 2024 based on your new RRSP room, even though you can't deduct it until next year, you should claim it on your 2023 tax return. This is because you want RRSP contributions when they are made, even if they can be held until next year.
Contributions made in the first 60 days of the year are reported on your previous year's tax return. Therefore, contributions made up to and including February 29, 2024, are reported on the 2023 tax return. You don't have to deduct an RRSP contribution either, even if you have enough. Making a donation and choosing to withdraw that donation are two different things.
It contributes a lot to your RRSP
An example might be your example, Lorraine, of donating a large amount like $55,000 in one year. If your income is $75,000, and you deduct the entire $55,000 in one year, you will only have $20,000 of taxable income.
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