What is the limit on over-contributions to an RRSP?

The correct answer highlights the specific rules governing over-contributions to a Registered Retirement Savings Plan (RRSP) in Canada, which is closely tied to how RRSP contribution limits work.

In Canada, the RRSP contribution limit is based on an individual's previous year's income and is indexed annually. However, beyond the allowable contribution limit, there are additional rules regarding over-contributions. Individuals are allowed a grace amount of up to $2,000 in over-contributions without facing penalties.

When considering situations like withdrawals, the RRSP regulations state that contributions made in the year of withdrawal and for two preceding years contribute to the calculation of this over-contribution limit. Therefore, it clarifies that individuals must consider these contributions when assessing their total allowable contribution and possible penalties.

Thus, the understanding that the current year's contributions and the contributions from two previous years are significant in determining the over-contribution threshold is essential for compliance and avoiding financial penalties.