OOPs Over Contributed to RRSP.....

If you have over contributed to your RRSP or spousal RRSP, then fixing it faster will reduce interest and penalty charges. But before panicking… get the all the relevant information.

Contribution made in the first 60 days:

• You may not need anything if you have contribution room for the current year. If you have contributed 5K in Feb 15^th 2011 and realized that you only have 2K contribution room for 2010. Don’t panic. You can use it for 2011 tax year without any penalty if you have contribution room for 2011.  You have to ensure you have room in the current and you don’t exceed current year’s contribution room.  

Contributions made from March to December and realized over contribution in the following year.

• If you have contributed 2K or less over the limit and you meet following conditions, then you are allowed one time over contribution up to 2K

1.      You are over age of 19 in the year you made the contribution and

2.      You have never had excess contribution before

You won’t be able deduct contribution in your 2010 tax return but you can use it for 2011 or any future years provided you have contribution room in those years and there will not be any penalty or interest assessed for the over contribution.

• If you have contributed more than 2K or already used the 2K provision previously, then you have to file T1-OVP form and pay the interest. If you pay the interest by March 31^st 2011 you will not be assessed penalty. It is your duty to complete the form and remit the funds to your tax centre. The interest will be 1% for each month and penalty will be 5% of the balance due.

You can also check with your financial institution whether they will reverse the contribution. If it is within a month or so they may reverse it but if it is longer than that time they may not be inclined to do that.