{"id":328510,"date":"2025-12-06T05:31:15","date_gmt":"2025-12-06T05:31:15","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/328510\/"},"modified":"2025-12-06T05:31:15","modified_gmt":"2025-12-06T05:31:15","slug":"when-an-rrsp-overcontribution-makes-sense-and-other-year-end-tax-tips","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/328510\/","title":{"rendered":"When an RRSP overcontribution makes sense and other year-end tax tips"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Canadians must convert their RRSP to a RRIF by the end of the year they turn 71. That means contributing to their RRSP by Dec. 31 or risking any unused contribution room going to waste.AnthonyRosenberg\/iStockPhoto \/ Getty Images<\/p>\n

Some clients who turned 71 this year and are still working might consider overcontributing to their RRSP before the end of this month. <\/p>\n

While they\u2019ll be hit with a penalty on the overcontribution, they\u2019re likely to generate a larger tax benefit from being able to deduct the amount in 2026 or a future year.<\/p>\n

\u201cIt\u2019s certainly an opportunity for the right type of investor,\u201d said Wilmot George, managing director of tax and estate planning at Canada Life in Toronto, during a Globe Advisor webinar<\/a> earlier this week. <\/p>\n

Canadians must convert their RRSP to a RRIF by the end of the year they turn 71. That means contributing to their RRSP by Dec. 31 or risking any unused contribution room going to waste. <\/p>\n

There is an exception: clients over the age of 71 who have unused contribution room can still contribute to a spousal RRSP and claim the deduction, as long as their spouse or partner is 71 or younger in the year they make the contribution. <\/p>\n

But what if someone turned 71 this year, doesn\u2019t have a younger spouse or partner and has already maxed out their RRSP contribution room?<\/p>\n

If they\u2019re still working and earning income, they\u2019ll have RRSP contribution room for the next year. So, while they can no longer contribute to their RRSP after this year, they can make an overcontribution this month.<\/p>\n

Yes, they\u2019ll be hit with a 1-per-cent per month penalty on overcontributions of more than $2,000 for December.<\/p>\n

However, \u201ccome Jan. 1 of next year, that new room becomes available,\u201d Mr. George said. \u201cIt absorbs the overcontribution and stops the penalty from accruing.\u201d <\/p>\n

Clients considering this strategy should weigh the expected cost of the penalty against the potential benefit of making the overcontribution and claiming the deduction in 2026 or subsequent years. <\/p>\n

Mr. George touched on other year-end tax strategies, including tax-loss selling and donating appreciated securities.<\/a> He also took a look at 2026 tax changes, including the tax-free savings account annual and overall contribution limit, and how Canadians can prepare for the upcoming tax season. You can watch our conversation here.<\/a><\/p>\n

I also wrote a breakdown of year-end tax-saving tips for all the different registered plans, which you can read here.<\/a><\/p>\n

– Rudy Mezzetta, Globe Advisor reporter<\/p>\n

rmezzetta@globeandmail.com<\/a><\/p>\n

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