When it comes to planning for your RRSP contribution, it can sometimes be confusing, and a little daunting. Here are some helpful tips:
Find Out How Much Room You Have: One quick way to find out is to look at your Notice of Assessment from last year. The Notice states your RRSP "deduction limit" for the current year which is generally your RRSP "contribution limit." However, you must remember to subtract any actual contribution made toward this limit including PAC plan or Group RRSP contributions. Pay attention to any contribution room you may have stockpiled from previous years. Obviously, you'll want to tackle unused contribution room now if you can.
Explore Your Contribution Options: Consider earmarking a lump-sum bonus, severance pay not eligible for RRSP rollover, an inheritance or windfall. You may even want to borrow money to make your RRSP contribution.
Don't "Park" Your Money: Speaking of last-minute contributions, waiting until late February to contribute can often mean waiting even longer to decide where to put it. While late is better than never, once you've made the deadline, don't let your money sit around. In real life, there is no such thing as free parking - the growth you stand to lose by keeping your contribution in cash can be quite significant.
Think About Withdrawals: If you're nearing retirement, you'll want to think about how to time your RRIF withdrawals. As RRIF withdrawals must be included on the current year's taxable income, when you take money out can make a big difference to the overall tax you pay.
Have a Plan for Your Refund: Instead of spending your refund when it comes in June, incorporate it into your financial plan. That may mean rolling it back into your RRSP, but it doesn't have to. Refunds are great for paying down credit card debt, making other investments, or accomplishing some other financial goal.
Get Some Help: This is the most important tip. Your RRSP is one of the fundamental pillars of your overall financial plan; as such, it deserves professional attention. When it comes to retirement, a little professional help can go a long way.
