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I have maxed out my RRSP deduction limit for the past two years due to my personal contributions and my company’s deferred profit sharing plan (DPSP). This year I stopped my RRSP contributions all together to not overcontribute on my end for the third year, but my company does a 4% match and then does a lump-sum payment every year as well. My question is: should I continue to overcontribute to my RRSP by 4% to get the 4% DPSP match, since they will do a lump-sum on top anyway? And then every year take out the overcontribution and fill out a T1-OVP?
—Kirsten
I can appreciate the dilemma here, Kirsten. You want to benefit from your employer’s contributions. However, registered retirement savings plan (RRSP) overcontributions can lead to significant penalties and should be avoided. Let’s break it down.
Group RRSP vs. DPSP: What’s the difference?
Employers have a few options for contributing to your retirement savings, including through a workplace pension plan, group RRSP matching and a deferred profit sharing plan (DPSP).
A group RRSP is sponsored by an employer who makes matching contributions to the account. Those contributions may be a default percentage of an employee’s salary or may be a percentage of an employee’s RRSP contributions up to a certain limit—or a combination of the two. Every plan is different. For example, an employer might contribute 2% of an employee’s salary automatically, plus an additional 50% match on an employee’s contributions up to an additional 2% match by the employer.
Sometimes, an employer will include a second account, a DPSP, as part of the company retirement plan.
What is a deferred profit sharing plan?
A DPSP is a registered savings plan through which employers share a portion of their profit with employees. Contributions may be a percentage of an employee’s salary or a percentage of an employer’s profit.
Only employers contribute to a DPSP. When you leave a company, you can transfer your DPSP into an RRSP. But the impact on your RRSP room differs from when you contribute to a personal or group RRSP. Personal or group RRSP contributions reduce your RRSP limit in the year of the contribution. A DPSP is a bit different.
What is a pension adjustment?
A DPSP contribution results in a pension adjustment (PA) that reduces your RRSP room the following year. This is similar to when an employee participates in a defined benefit (DB) or defined contribution (DC) pension plan.
The idea behind the pension adjustment is that all Canadians should have a comparable ability to contribute to their retirement savings, whether or not they have a pension or a DPSP. Pension and DPSP participation reduces RRSP room.
If you are contributing 4% to your group RRSP and your employer is matching 4%, it would require a significant DPSP contribution from your employer to overcontribute to your RRSP, Kirsten.
Your RRSP room is 18% of your earned income from the previous year up to a maximum of $32,490 for 2025. That means unless your income was more than $180,500 for 2024, or it increased significantly between 2024 and 2025, your employer DPSP contribution would need to be more than 10% of your salary to wipe out your RRSP room in order to reach the threshold of overcontributing. And you would have to be maxed out on all your past accumulated RRSP room as well.
What to do about RRSP overcontributions
If you do overcontribute to your RRSP, you’re subject to penalties and interest. The Canada Revenue Agency (CRA) gives you a small $2,000 buffer, however. For overcontributions beyond that $2,000 limit, there’s a 1% monthly penalty. The CRA also charges interest on the penalties.
If you exceed your RRSP room, you should file T1-OVP 2024 Individual Tax Return for RRSP, PRPP and SPP Excess Contributions, or write a letter to the CRA confirming the date(s) of the RRSP contribution(s) that resulted in the overage. Otherwise, the agency will generally notice on its own at some point.
If you have overcontributed, Kirsten, you should remove the overcontribution as soon as possible. You can either withdraw the excess and be subject to withholding tax, or you can complete Form T3012A, Tax Deduction Waiver on the Refund of Your Unused RRSP, PRPP, or SPP Contributions from your RRSP, PRPP or SPP. The form, once approved, will allow a withdrawal from your RRSP with no withholding tax. However, in the meantime, the penalties and interest will continue to accumulate.
So, some account holders simply withdraw the excess with withholding tax of 10% to 30% depending on the amount of the withdrawal. A T4RSP slip is issued the following February to report the income and the withholding tax on your tax return.
The withholding tax can be recovered when you file your tax return, and the income can be offset by filing Form T746, Calculating Your Deduction for Refund of Unused RRSP, PRPP, and SPP Contributions with your tax return. This form allows you to claim a deduction to reduce the income included, since you did not and will not deduct the RRSP contribution.
Be quick to correct an overcontribution
DPSPs and pension plans can lead to confusion about RRSP room. But ultimately, it is up to the taxpayer to make sure they do not overcontribute.
If you do overcontribute, you should withdraw the excess as soon as you can.
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