Needless to say, it’s that time of the year again when some of us are scrounging for money and time to invest to our Registered Retirement Savings Plan (RRSP).
If you’re a procrastinator and haven’t got around to contributing yet, here are a few things to keep in mind.
• Deadline for this year is 11:59pm Monday, February 29, 2016.
• If you have high income in 2015 and projected low income for 2016, you may want to use RRSP contributions (2015)/withdrawals (2016) to equalize your income of both years to save on the overall income taxes for the combined two years.
• Contribute to a spousal RRSP if you’re the high income earner in the household. This will enable you the tax deductions and equalize both your retirement income down the road on retirement.
• If you have no or low income in 2015, you probably want to skip the contribution altogether for this year. This is especially applicable if you anticipate higher income years in the near future which can benefit more from your contributions then.
• Do not exceed your RRSP contribution limit. Check your Notice of Assessment for the maximum amount you’re allowed. There’s a maximum over-contribution limit of $2,000 and going over will end up attracting a steep penalty.
• Don’t rush into the wrong investments when you make your RRSP contributions. Temporarily park your contributions into a cash account within your plan. Take your time and make your investment decision later when you’ve done your due diligence.
• Consider appointing a beneficiary.
• Keep in mind any RRSP withdrawals are taxable in the year of withdrawal.
• Keep in mind any spousal RRSP withdrawals may be taxable by the higher income earner if the rules are not followed. Consult with your advisor before making this move.
• You can still make contributions to a spousal RRSP after you turned 71 if you have the room, providing your spouse is not yet 71.
• And remember your RRSP is, first and foremost, savings for your retirement. Do not use it as a short term savings vehicle.