RRSPs or Registered Retirement Savings Plan is a key strategic account for Canadians and their financial journey. A RRSP is a tax sheltered account that helps individuals (or couples) earn income without paying taxes as long as the amount stays in the account. It is a crucial aspect for planning for retirement in Canada. A key question emerges : How many RRSP accounts can I have?
So, How Many Accounts Can I have?
Well, there’s no specific limit to the number of RRSP accounts you can open. If your personal finance strategy allows you to, you can have multiple RRSP accounts with different financial institutions or brokerages. The key thing to keep in mind, however, is that you have a Set contribution limit across all your RRSP accounts combined. This means that irrespective of how many accounts you hold, you should try and not surpass your Contribution limit for the year.
Contribution Limit Explained
Let’s break it down a bit. Canada Revenue Agency (CRA) sets an annual Contribution limit. Your total contributions to all RRSP accounts must not exceed your annual contribution limit. This limit is a maximum of 18% of your earned income (think Salary, bonus, commissions etc.) from the previous year, up to a maximum dollar amount. For example, the maximum contribution limit for 2023 is $30,780. This limit may change annually due to inflation adjustments.
Your available contribution room can be seen on your latest Notice of Assessment from the CRA, including any unused contribution room from previous years. It’s crucial to stay within these limits to avoid over-contribution penalties. Over-contributing more than $2,000 incurs a 1% penalty per month on the excess amount.
Let’s say you have three RRSP accounts across different institutions. If your contribution limit for the year is $30,000, your combined contributions to these accounts must not exceed this limit.
The Pros and Cons of Multiple RRSP Accounts
Pros:
- Diversification: Having multiple accounts allows you to invest in a variety of assets through different institutions. You employer may be depositing their match in another financial institution while you may opt for a different Financial institution to self manage.
- Management: You might prefer different institutions for their specific services or investment options. With employer matched contributions, you may not be able to pick you choice of Mutual funds or ETFs but you could very well do this in your self-managed accounts.
- Segregation: Keeping certain investments separate can help manage different financial goals.
Cons:
- Complexity: Managing multiple accounts can be more complicated and time-consuming. Managing two or more accounts also means keeping an eye on tracking the annual contribution closely as you may accidently exceed your annual limit.
- Fees: Separate management or administration fees for each account can add up.
Conclusion
Let’s summarize the answer to ‘How many RRSP accounts can I have?’. As many as you want. But it is crucial to keep an eye on your total contributions to avoid exceeding your annual limit. By monitoring your contributions and understanding the associated limits, you can maximize the benefits of your RRSPs without incurring penalties. Aligning your RRSP strategy with your overall financial goals is key to long term financial success. Remember that having different accounts does not mean that your investments grow faster. A 5% growth on $200 in three separate accounts each is the same as 5% growth in one account with $600. Make it manageable per your needs.
But it may be beneficial to have two separate accounts if your current employer also contributes to your RRSP. There is a chance that this account may have some associated fees but the match is essentially free money. You might also have limited options to invest in for this account. When you switch roles you could consider rolling over the amount to your Self-managed account.