Right way to make an RRSP over-contribution correction?

[kon_kat]

I had opened up a PC Financial RRSP account in the spring. Later in the year when I was checking on my contributions I realized that the contribution I made and the amount my employer was contributing to another fund would result in an over-contribution. Seeing as it was still in the same tax year and I had not yet declared the amount I contributed I went about the correction by withdrawing from the PC Financial RRSP account. I withdrew an amount that put me under my limit plus the interest earned on this amount. PC Financial did a holdback on my withdrawal.


I am thinking this was the wrong way of making the correction. What should I do so that I do not have any penalties or lose my contribution room?

Thanks

[BillyParadise]

Yes, it sounds like you might have screwed yourself. As far as I know, once you've withdrawn the funds from your RRSP, you dont get the contribution room back.

You can contribute $2000 over your limit without a problem.


See http://www.google.com/search?q=rrsp+overcontribution

This was a good article: http://www.canada.com/topics/finance/rrsp2006/story.html?id=9385e459-37a2-4ecf-9fd5-4881f662f010&k=73176

[fastlayne]

First, an over-contribution of up to $2000 is allowed. So, at any given time you can be $2000 offside.

On the occasions that I have over-contributed, I only claim my allowed limit + $2000 and save any balance for the next tax year. I have always cleared the over-contribution (something beyond $2000) over two tax years and have never been requested to withdraw. If you have a number of small bi-weekly contributions from your employer, then it is easy to divide the receipts across the two years.

[TopTaxGuy]

You could claim your overcontribution in the future. However, if you have over contributed there should be no impact on your future contribution limits.

[smihaila]

On the occasions that I have over-contributed, I only claim my allowed limit + $2000 and save any balance for the next tax year. I have always cleared the over-contribution (something beyond $2000) over two tax years and have never been requested to withdraw.

You cannot claim your allowed limit PLUS that overcontribution of $2000. That surplus of $2000 can be claimed only in a year when you'll no longer contribute too much. What you say is a paradox, doesn't make sense.

[smihaila]

You could claim your overcontribution in the future. However, if you have over contributed there should be no impact on your future contribution limits.

Yes, you can. But please be careful, you are not allowed to overcontribute by more than $2000 in any year. Anthing above that is subject to painful penalties from CRA (at least theoretically). There is a speciaal Txxx form can't remember it exactly right now (T3012A?) - which permits you (from an "official" standpoint) to withdraw the surplus without being taxed at withdrawal, as you'd be normally be for any RRSP withdrawal. But it's a slow process, you must wait for more than 1 month to pass, to get the aproval back from CRA (with that aproval you then go to the financial institution which will no longer withheld some tax at source).

Sometime is easier to just say nothing and wait 1-2-3 years for the overcontribution to be "absorbed". But technically, CRA could notice the situation that occurred in the past and ask you in the next years to pay the required penalties. Sometimes they are merciful and waive those penalties.

It's somehow bizzare and hilarious - for the savings oriented persons to be considered felons - especially when Canadians on average don't reach their maximum contr. limits. But that's what in fact happens practically. It's good that CRA is sometimes reasonable and don't say anything (or maybe their electronic systems are not there yet).

[kon_kat]

Thanks for the advice so far. I still haven't done my 2007 taxes so no RRSP amount has yet to be declared. I'd like to declare the corrected amount as opposed to the initial amount to allow me to keep the contribution room for a later year. My only concern is that with the withdrawal and holdback that the CRA will clue in to my initial amount.

I had thought that my correction would be enough to make things alright but now I'm not so sure.

[alanbrenton]

Yes, you can. But please be careful, you are not allowed to overcontribute by more than $2000 in any year. Anthing above that is subject to painful penalties from CRA (at least theoretically). There is a speciaal Txxx form can't remember it exactly right now (T3012A?) - which permits you (from an "official" standpoint) to withdraw the surplus without being taxed at withdrawal, as you'd be normally be for any RRSP withdrawal. But it's a slow process, you must wait for more than 1 month to pass, to get the aproval back from CRA (with that aproval you then go to the financial institution which will no longer withheld some tax at source).

Sometime is easier to just say nothing and wait 1-2-3 years for the overcontribution to be "absorbed". But technically, CRA could notice the situation that occurred in the past and ask you in the next years to pay the required penalties. Sometimes they are merciful and waive those penalties.

It's somehow bizzare and hilarious - for the savings oriented persons to be considered felons - especially when Canadians on average don't reach their maximum contr. limits. But that's what in fact happens practically. It's good that CRA is sometimes reasonable and don't say anything (or maybe their electronic systems are not there yet).

It's TAX WAIVER something... I just read about that in a personal finance book.

[monty613]

http://www.cra-arc.gc.ca/E/pbg/tf/t3012a/t3012a-07e.pdf

[cyberthor]

This is a good thread. I also over contributed in 2007. It was suggested that I fill out a T1-OVP ot figure out my 1% per month penalty. When I phoned CRA to confirm, a lady said that people don't normally fill this out until they get a notice in the mail. I asked to get her name so I could quote her on this, but of course, she wouldn't give her name. As other posters mention, also need to fill out a T3012A to take the funds out of your RRSP.

The whole process is real confusing. Any advice fellow RFDers?