Homework answers / question archive / FMGT4410 Chapter 10 Lecture NotesRRSP ContributionsNow that Anfisa has calculated the maximum deduction she can take for 2018, she must determine how much she can/should contribute to her RRSP

FMGT4410 Chapter 10 Lecture NotesRRSP ContributionsNow that Anfisa has calculated the maximum deduction she can take for 2018, she must determine how much she can/should contribute to her RRSP

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FMGT4410 Chapter 10 Lecture NotesRRSP ContributionsNow that Anfisa has calculated the maximum deduction she can take for 2018, she must determine how much she can/should contribute to her RRSP.? Tax planning:  o No deduction can be made for amounts that are not contributed. Previously undeducted contributions from past years, as well as contributions from this year, may be deducted.o However, a taxpayer can make contributions that they choose not to deduct – a non-deducted contribution.There are two types of non-deducted contributions:1. Amounts contributed but no deduction was taken because tax planning indicated it would be better to use the deduction in a later year. (a choice)2. Amounts contributed in-excess-of the RRSP deduction limit for the year are called the Cumulative Excess Amount s204.2(1.1). Essentially, you cannot have your undeducted contributions exceed your RRSP deduction limit, or you are penalized. o At any given time, an individual can be over-contributed by up to $2,000 without paying any penalties. s204.2(1.1) This cushion is only available to individuals 18 or older.o Due to the time value of money and the benefits of compound investment growth, taxpayers can take advantage of this “non-penalty excess” to maximize retirement savings.o If the Cumulative Excess Amount is greater than $2,000 the penalty is 1% per month s204.1(2.1)? Tax planning: the process for determining contributions is as follows:RRSP Deduction limit  s146(1), s147.1(1)(Contributions not yet deducted)= Maximum deductible contribution+ $2,000 non-penalty excess                                                                             s204.2(1.1)= Maximum contribution without penaltyNote: 204.2(1.1) can be a confusing subsection – essentially, it says that the cumulative excess amount is the amount of undeducted contributions that exceeds the RRSP Deduction Limit.ExampleFollowing from the previous example, assume that Anfisa has been making $50 monthly contributions into her RRSP account so that at the end of the year she has $600 that she has contributed but not yet deducted. Calculate the:a) maximum deductible contributionb) maximum contribution without penalty