The 2016 RSP season is drawing to a close, and despite the numerous warnings about saving for retirement, maximizing your RSP and not missing the March 1 deadline, many Canadians still have not made their contribution.
Here are a few tips for the last-minute contributor (you know who you are!) :
1) Contribute now, invest later. Beat the deadline and get your tax deduction by parking your money within your plan in a low-risk account such as a daily interest savings account. Take the time you need to invest it wisely. Just make the contribution fore 11:59 p.m. on March 1.
2) Speak to an advisor. Many don’t think they can afford to make an RSP contribution, but before you rule out this option, speak to a representative at your financial institution. Too many Canadians see paying off debt and saving for retirement as an either-or-propostion. That’s the wrong approach. You could do both. Make the contribution and take your tax refund to pay off the loan. In today’s low-interest rate environment, even though the interest paid is not tax deductible, there are so many flexible loan options out there to consider making it much easier than you think to save for retirement.
3) Consider income-splitting strategies and take advantage of a spousal RSP to generate retirement income. This strategy will work if your spouse’s income will be lower than yours over the next few years or in retirement.
4) Establish a regular contribution plan to take the pain out of rushing at the last minute next year. Not only will you gain satisfaction by feeling in control of your financial future you also stand to benefit from the power of compound interest.
5) Recognize that RSPs make up the bulk of many people’s assets, yet many don’t designate a beneficiary. When your spouse is designated to be your beneficiary, should anything happen to you, the assets can be automatically transferred tax-free to their plan, avoiding probate fees and income taxes.
Once you have set up your RSP, try to resist the urge to dip into it. Not only will there be tax consequences, there is the simple fact that the amount you can contribute to an RSP is your lifetime is limited and a withdrawal erodes some of this potential. The RSP limit for 2016 is the lesser of 18 per cent of your 2015 earned income or $25,370.
Contributing to your RSP is important, but it is just one component of retirement planning yet it is a good place to start. It’s not too late to make your contribution count for your 2016 taxation year but the clock is ticking…
CTV's Chief Financial Commentator Pattie Lovett-Reid offers a financial tip of the day during the month of February for Your Money Month.
Advertisement