Who can contribute, and how much?

Anyone with "earned income" can contribute to an RRSP, up to and including the year that the contributor turns 71 years of age.  Contributions can be made to a spousal RRSP up to and including the year that the spouse or common-law partner turns 71 years of age.  This maximum age was increased from 69 to 71 by the 2007 Federal budget, giving people an additional two years to contribute.

Generally, earned income includes a taxpayer's income (earned while the taxpayer was resident in Canada) from the following:

	income from office or employment reported on a T4 slip (line 101 of the tax return)
	other employment income (line 104) - this includes foreign employment income, which must be reported in Canadian dollars. Employment income on a US W-2 slip may have been reduced by contributions to a "401(k), 457 or 403(b) plan, US Medicare and Federal Insurance Contributions Act (FICA)".  These amounts are not deductible on a Canadian tax return, and the gross employment income before these deductions would be included in earned income.
	income (less loss) from a business carried on by the taxpayer, either alone or as a partner actively engaged in the business
	income (less loss) from rental of real property
	royalty income regarding a work or invention of which the taxpayer was the author or inventor
	taxable support payments received
	CPP or provincial disability pension income
	amounts received under a supplementary unemployment benefit plan (not federal Employment Insurance)
	less deductible support payments made

	18% of "earned income" for the preceding year, to an annual maximum (see following table)
	less the "pension adjustment" amount, for participants in a Registered Pension Plan (RPP) or Deferred Profit Sharing Plan (DPSP)
	less any "past service pension adjustment", for participants in a RPP or DPSP
	plus any "past service pension adjustment" reversals
	plus unused deduction room carried forward from the previous year

The annual limits for RRSPs, money purchase (defined contribution) RPPs and defined benefit RPPs are:

For each year after 2009 for RPPs and 2010 for RRSPs, the limits will be indexed for inflation using the Industrial Aggregate average wages and salaries in Canada.

RRSP limits lag behind RPP limits by one year because RRSP limits are based on prior-year earnings, and RPP limits are based on current-year earnings.

A taxpayer can contribute up to the amount of their deduction limit, plus an excess contribution as long as the total excess contribution never exceeds $2,000.  Any excess contribution over $2,000 will be subject to penalties.  It is not mandatory to actually deduct the entire deduction limit amount on the current year tax return.  If the taxpayer will be in a higher tax bracket in the following year, some or all of the contribution made can be carried forward to be deducted in a future year.  The advantage of doing this must be weighed against the disadvantage of receiving the tax refund in a later year.

If the RRSP contribution is less than the deduction limit, then the "deduction room" is carried forward to future years.  Assume Taxpayer 3 made a contribution of only $10,000 for 2005.  The unused deduction "room" of $6,500 can be carried forward and added to the calculation of the 2006 deduction limit.

For further information, see the RRSP contributions section of CRA's T4040 - RRSPs and Other Registered Plans for Retirement.

To calculate savings from an RRSP contribution, see the Canadian tax calculator.

Tax tip:  Pay yourself first.