RRSP fast facts – what you need to know to save and grow
The deadline for making your 2008 Registered Retirement Savings Plan (RRSP) contribution is fast approaching – but you still have time to take advantage of a few last-minute RRSP facts and tips that will reduce your tax load this year and help build a financially comfortable retirement.
· Don’t miss the deadline. This year’s contribution deadline is March 2nd, 2009.
· Maximize your RRSP contribution. The best strategy is to always make your maximum allowable contribution each taxation year.
That way, you’ll get the most in immediate tax savings and maximize the potential long-term growth of the investments in your RRSP. You’ll find your personal maximum allowable contribution room on your most recent notice of assessment from the Canada Revenue Agency (CRA).
· Catch up on past contribution room. You can fill your unused contribution room in a single year or over a number of years until the year you reach age 71 – but the faster you fill it, the better for additional tax savings and longer term tax-deferred, compound growth.
· Borrow to save. Taking out an RRSP loan can be a smart way to maximize this year’s contribution or to catch up on your past contributions. The key is to get a loan at a low interest rate and pay it back as quickly as possible. You can even use your RRSP tax savings to help pay off the loan.
· Split income to save. While you can take advantage of the new pension income splitting rules in retirement, in the right situation, a spousal RRSP can still make sense to save taxes in your retirement.
· Diversify for better growth. The government caps the amount you can contribute to your RRSP(s), so it’s highly likely you’ll need additional income to afford the retirement of your dreams – and that’s where a Tax-Free Savings Account and your non-registered investment portfolio comes in. A well-balanced portfolio is based on an asset allocation plan that matches your risk profile and time horizon.
· Choose an RRSP beneficiary. You can designate a beneficiary on your RRSP (in Quebec, this must be done through the Will). If you die without a beneficiary designation, up to 48% of your total RRSP value could be lost to taxes. Generally speaking, the RRSP assets do not form part of your estate and, therefore, do not attract probate fees. And, if your beneficiary is your spouse (or a disabled dependent child or grandchild) your RRSP may be transferred on a tax-deferred basis to your beneficiary’s registered plan.
With the right RRSP strategies wrapped in a sound, overall financial plan, you will save on taxes every year and retire with more.
John Scholl B. Mathematics, CGA,
Wealth Management & Financial Planning
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