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PLANNING FOR RETIREMENT:
RRSP STRATEGIES
Try to max out your RRSP contribution every year.
Find your maximum contribution amount on your Notice of Assessment from
the Canadian Customs and Revenue Agency. If you can’t wait for the CRA’s
assessment, go to www.cra-arc.gc.ca for information about your current
Notice of Assessment.
- The annual contribution limit is 18% of your previous year’s income
to a maximum of $21,000 (less if you contribute to a pension plan or
a deferred profit sharing plan depending on the value of the benefit
in the previous year). The limit increase is indexed annually to the growth in the national average wage.
- The annual contribution deadline is 60 calendar days into each year.
Contributions made during this time may be credited to the current
year or the previous year for tax purposes. Contributions made
during the rest of the year are credited for the year in which they
are made.
Catch up.
If you haven’t maxed out on your contributions every year, you are allowed to catch up—borrowing to catch up is an option.
Save automatically.
Instead of contributing to RRSPs once a year, try to do so more often using pre-authorized payments. Why? Traditional RRSP season is in the winter, right after the holidays, when many people have nothing left to spend. Then January through February is busy as people get back into the swing of things—visiting a financial institution then is often a nightmare. Contribute automatically and you won’t even have to remember the deadline. You may even spend less during the holidays because some of your money is already put towards your savings.
Two key RRSP strategies:
- Investment Loans: It may be beneficial for you to borrow to make your RRSP contribution. You succeed in making your contribution sooner, and can use your tax return to pay off or pay down your RRSP loan.
- Spousal RRSP’s: Consider this if there is a large gap between you and your spouse in either income or the size of your RRSP savings or pension benefits. A spousal RRSP can help you and your spouse split your income at retirement and potentially lower your taxes when you withdraw from your RRSP. All RRSP options qualify for a spousal RRSP strategy.
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