What to do if you went over your RRSP contribution limit

If you over-contributed, you may want to move the funds to a TFSA instead. Here’s how

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From the September/October 2016 issue of the magazine.

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Q: I over-contributed about $900 to my RRSP but I’ve already submitted my taxes. I want to remove the excess and put it in my TFSA. If I do that, what steps do I have to take to adjust my tax return and will I owe a penalty?

—Eileen Tan, Toronto

A: Take a deep breath. You don’t need to do anything. You are within the $2,000 of wiggle room the CRA provides on over-contributions. And if the $900 contribution was made in the first two months of the year, it can be applied to either the prior year or current year.

Even though you aren’t facing a penalty, there are a few ways to shift that amount to your TFSA if you really want to. Ian Collings, a CFA and CFP at Vancouver-based Collings Financial, says, “the most complex way to transfer the funds is to file a T3012A and withdraw the funds. Then file a T1OVP to calculate your penalties.” Yaaaawwwn. I’m way, way too lazy to do that, so luckily Collings has another option. “The simplest is to reduce your future RRSP contributions and save in your TFSA.” In other words, direct some of the money you would have put into your RRSP into your TFSA instead so you don’t over-contribute again this year. Now that I would do.

But definitely do not just yank the money out of your RRSP and put it in your TFSA. “If you view an RRSP as an umbrella sheltering you from taxes, an RRSP withdrawal will take a slice out of the corner of that umbrella,” says Collings. The reason is that withdrawal will be taxed as income and you won’t get that contribution room back. And, by the way, congratulations on doing so well with your RRSP contributions. I’d say your over-contribution “problem” is a great one to have.

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