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Carrying RSP Contribution Room Forward
If you do not make a maximum RSP contribution, your unused limit will automatically be carried forward so you can catch up later.
That provides great flexibility, but you are generally better off using all of your contribution room as it becomes available. Here’s why:
- The longer you wait, the more tax-sheltered compounding you give up.
At 6% average annual growth, a five-year delay would reduce your accumulation
by about one-quarter.
- New contribution room will be added to your unused balance each year. So the longer you wait, the harder it will be to muster enough cash to take full advantage of the RSP’s tax-saving opportunities. Ultimately, the accumulated room could become so large that you can never make full use of it.
- The value of the tax deduction for your RSP contributions depends on your tax bracket. A large catch-up contribution could easily drive you down by one, two or even three or more levels. Each time your taxable income drops through a level, that part of your deduction falls in value. Suppose someone with $65,000 of taxable income makes a $40,000 catch-up contribution. The contribution’s top $5,000 saves about $2,500 in tax while the bottom $5,000 saves only about $1,250.
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