Personal Investor: 4 tips for RRSP procrastinators
If you want to lower your 2017 tax bill, the deadline to contribute to your registered retirement savings plan (RRSP) is midnight, March 1.
If that comes as a surprise, remain calm and don’t make any hasty decisions. You still have plenty of options.
First, step back and ask yourself if an RRSP is the best tax vehicle to drive your investments to retirement. RRSP contributions are deducted from your taxable income and if you are in the lowest income bracket you save the least amount of money. Besides, those contributions and any gains they generate over the years are fully taxed in whatever bracket you are in when they are withdrawn.
Maybe a tax free savings account (TFSA) is a better choice. You don’t get the immediate tax break but the gains generated in the account are never taxed.
If an RRSP contribution is a better move for you, consider borrowing against the tax refund to give it a boost. Online RRSP refund calculators can help you determine the amount you would need to borrow to match the amount you will get back in the spring. Adding the refund amount to your contribution allows you to get a refund on the refund, a refund on that refund, and so on. Interest on the loan should be small considering the short time span but this is where a low-interest home equity line of credit comes in handy.
If you’re torn over where to invest your contribution, you don’t need to do it right away. You can still get the tax deduction by making a contribution and park it in cash before the deadline and invest later when you can discuss it with a qualified investment advisor.
If you just can’t swing a contribution this year, there’s always the 2018 tax year. Avoid the rush next year by setting up a regular payment plan throughout the year. Making regular payments also allows you to invest at regular intervals and smooth out volatility in your portfolio. Any contribution room you didn’t use for 2017 can be carried forward to a future date when – perhaps – you’re in a higher tax bracket and can get more bang for your buck.