Contribution room is the maximum amount of money you are allowed to contribute to a registered account, such as an RRSP, TFSA, or FHSA, without facing penalties. The limit is set by the government and may depend on your income and account type.
How It Works
Each year, new contribution room is added based on rules for the account type. For RRSPs, it is generally 18% of the previous year’s income up to an annual maximum. For TFSAs, the government sets a flat yearly limit for all eligible Canadians. Unused room usually carries forward to future years.
Why It Matters
- Tax benefits: Maximizing contribution room helps reduce taxes (RRSP) or grow investments tax-free (TFSA/FHSA).
- Flexibility: Contribution room carries forward, so you can catch up later if you miss a year.
Final Thoughts
Understanding contribution room helps Canadians take full advantage of registered accounts. Staying within your limit avoids penalties and maximizes tax benefits.