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Dear Nancy

After completing my income tax return for 2015, I found out that I made my RSP contribution twice in the amount of $15,000. My allowable RSP contribution room was $15,000. I did one contribution in February and the second the end of October. My allowance for 2016 is $20,000. How do I fix the over contribution? Do I withdraw $15,000 and then use it for my 2016 contribution?

Signed, Andrea

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Dear Andrea,

There is a lifetime over contribution allowance of $2000 that the government allows every tax payer to put into their RSP. This is a cushion in the event that you over contribute. The penalty for the amount over the $2000 allowance is subject to a penalty of 1 per cent each month that the over contribution is in your RSP.

In your specific case, you can voluntarily declare the overage for the 3 months of October, November and December. There is no need to go through the exercise of deregistering $15,000 and then re-contributing it right afterwards. If you were to make the withdrawal it would be subject to a 20 per cent withholding tax or $3,000. There would then be only $12,000 remaining funds for you to put back into your RSP.

Since you have a higher RSP allowance for 2016 the excess of $15,000 isn't an overage anymore once January 1, 2016 passed.

It is best to avoid the depletion of your funds that could go into your tax shelter unnecessarily. The goal is to have more to put in, not less.

Nancy

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Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to asknancy@rbc.com. You can also send your questions to asknancy@rbc.com.

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