Ten tips to help you make the most of your RRSP
Canadians have one of the best retirement savings programs in the world: it’s called the RRSP. Because an RRSP allows you to defer tax both on capital (the amount you initially invest) and income (the money your investment generates), RRSPs are one of the best ways to save for a long and happy retirement.
How can you make the most of your RRSP this season? Here are a few suggestions:
1. Know the deadline
The deadline for making your RRSP contribution is normally March 1 (leap years February 29th). If you want to deduct your contributions for the previous year, you’ll have to have your contributions deposited in your plan by that date.
2. Make your maximum contribution
Generally, the amount you can contribute to your own RRSP or your spouse or your common- law partner’s RRSP for a given tax year without tax implications is determined by your RRSP deduction limit. This is often called your ‘contribution room’. Amounts that you contribute above this limit may be considered Excess contributions.
Your RRSP deduction limit can be found in the RRSP Deduction Limit Statement on your latest Notice of Assessment or Notice of Reassessment or on form T1028.
3. Consider an overcontribution
If funding isn’t a problem, consider making your $2,000 allowable overcontribution; federal guidelines allow you to contribute a maximum of $2,000 over your normal RRSP limit during your lifetime with no penalty. You won’t be able to claim it on your tax return, but that $2,000 will make a lot of difference to the growth of your retirement nest egg over the lifetime of your plan.
4. Establish a regular contribution schedule
Technically, you have 60 days from the start of the year to make your RRSP contribution. But many Canadians find it difficult to find the cash for a large contribution after the holiday spending season. Why not avoid the last-minute rush and set up a regular schedule of contributions—say, every month. You’ll take advantage of dollar-cost averaging, and you’ll eliminate the stress of trying to come up with cash in a short time frame.
5. Consider an RRSP loan
If you have a lot of unused RRSP contribution room in your plan from previous years, consider taking out a short-term RRSP loan to catch up. Most RRSP loans are offered at extremely attractive rates (often prime or very close to it), and can be arranged on very short notice. Check your financial institution for details.
6. Remember your birthday
Are you turning 71 this year? If so, you’ll want to consider what happens to your RRSP after your birthday. Under federal guidelines, all RRSP holders must wind-up their RRSPs at the end of the year in which they turn 71. What happens next is up to you. You can either (a) cash out your RRSP in its entirety; (b) use the funds to purchase an annuity; or (c) roll your RRSP into a RRIF. Most investors choose option (c), but check with a financial professional to make sure which decision is right for you.
7. Make a contribution in kind
You’d like to make a contribution to your RRSP, but you’re a little short on cash. Not to worry. Simply make a contribution in kind. If you hold securities outside your RRSP, consider rolling them into your RRSP—the market value of your investment on the day you roll it into your RRSP will be the value for tax purposes.
8. Consider a spousal RRSP
If you anticipate a significant difference between the income you and your spouse expect to earn during retirement, it may make sense to set up a spousal RRSP. Doing so may make it easier to save taxes, as well as avoid clawbacks of government-sponsored benefits during retirement. The specific details of a spousal RRSP can be complicated, however, so make sure to seek the advice of a qualified professional before making any decisions.
9. Seek professional help
Saving for your retirement doesn’t have to be complicated. But it does take some planning. To make sure you get the most out of your retirement nest egg, be sure to speak to a professional who knows your personal financial goals. Together, you can create an RRSP to ensure your golden years are truly golden.
10. RRSP’s are creditor protected
Although not a new characteristic, it is worth mentioning as not everyone may know this. The protection applies so long as the funds remain in the plan. If a creditor has a claim against you, it can attach money from your plan if – but only if – you withdraw money from the plan. Then the creditor can apply to attach payments from the plan in the same way it can seize an employee’s wages.
The opinions expressed within this article/communication are those of the Financial Advisor and are not necessarily those of Keybase Financial Group Inc. Any data provided is for illustration purposes only. Clients and prospective clients should always read a product prospectus and fully understand all of the risks associated with the product before purchasing. Any information relating to the discussion of taxation issues is considered to be only general in nature. Clients should seek a qualified tax professional to discuss their specific tax requirements.
Keybase Financial Group Inc. is a member of the MFDA and is a member of the MFDA IPC.