RRSP Contribution Strategies

By January 9, 2019 March 11th, 2019 No Comments

Get the most out of your RRSP contributions this year

Do you plan to maximize your contributions to your Registered Retirement Savings Plan (RRSP) for the 2018 tax year? If your answer is “no,” you’re not alone. The latest census data from 2016 reported that just 22.5% of tax filers in Canada contributed to an RRSP, part of a 16-year declining trend. And the median contribution across the country was just $3,000 in 2016.*1 According to the same census data, Canadians’ unused contribution room for 2016 alone amounted to approximately $54 billion.*2

Putting aside a significant portion of your assets or earnings every year for RRSP contributions isn’t always easy. However, working with an advisor can help ensure you’re maximizing the effectiveness of these contributions. There are numerous benefits to RRSP investing, such as tax-deferred growth and the tax deductions from contributions. Remember that you have an RRSP contribution limit based on 18% of your earned income from the 2017 tax year up to a certain limit. The maximum RRSP dollar contribution limit for the 2018 tax year (the tax return you file by April 30, 2019) is $26,230, and the limit for 2019 is $26,500.3 All these previous numbers can be adjusted depending on unused contribution room from previous years and any pension plans you might have through employment.

As your advisor, I can help you determine what your individual contribution limit is, what your expected tax benefits could be, and how to best use your contributions this year to position you for the long term. While you might not hit your RRSP contribution ceiling this year, here are some strategies and tactics you can use to get the most out of your investment dollars.

Advantage of a lump sum contribution

If you already know how much you can contribute to your RRSP this year but have not yet done so, try to check that task off your list well before the March 1, 2019 deadline. Thinking ahead to the 2019 tax year, if you know how much you can contribute before the deadline in 2020, and you have the assets in hand, it’s also better to make a lump sum contribution sooner rather than later. Why? An earlier contribution (such as mid-March 2019) means you can possibly benefit from up to 12 months’ worth of potential growth and/or income, but with the same tax benefit as a contribution made later on in the year.

Automatic contributions and dollar-cost averaging
If a lump sum contribution isn’t an ideal option, spreading out your contributions over the next tax year is another sound strategy. You can set up a pre-arranged monthly contribution with your advisor for simplified and painless RRSP investing. This can help even out your portfolio returns, as you’ll be investing regular, fixed amounts in both up and down markets.

Spouses and RRSPs
Sometimes a difference in income and/or portfolios between two spouses, including common-law partners, can be turned into an advantage. Higher earning spouses can contribute to both their own RRSP and to a spousal RRSP under their partner’s name, subject to the higher earner’s limit. The higher earners gain the benefit of the tax deduction, while their spouses benefit from building up their nest egg for retirement, in which they will likely be in a lower tax bracket than their higher-earning spouses. In such a scenario, the overall household gains from having some RRSP assets in a lower tax bracket.

Read our e-book to gain more insight into the RRSP strategies discussed and give my office a call to set up our next appointment to discuss these and other strategies best suited for your needs.

“Total RRSP contributions rise as number of contributors declines slightly,” Benefits Canada, February 20, 2018.

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  1. Statistics Canada, Table 11-10-0045-01, Registered Retirement Savings Plan (RRSP) room of tax filers.
  2.  “MP, DB, RRSP, DPSP, and TFSA limits and the YMPE,” Government of Canada, December 21, 2017.