2015 RRSP deadline is February 29, 2016 – Here’s Some Tips and Considerations!
The Registered Retirement Savings Plan (“RRSP”) deadline is quickly approaching, being February 29, 2016 this year as it’s a leap year. Here are a few things to keep in mind when considering your RRSP contribution:
- What tax bracket will you be in for 2015 vs. 2016? If your income is over $200K, then maybe you want to save your RRSP contributions for 2016 when the top personal tax rate will be higher than 2015. If you’re in the “middle” tax bracket, then you may want to consider making a bigger contribution for 2015 as next year the middle tax bracket rate will be lower.
- Are you expecting your income to increase significantly in the future? Then you may want to save your RRSP contributions for when your income is higher, as you’ll save tax at the higher tax rates.
- How much can you contribute? Check your Canada Revenue Agency notice of assessment very carefully, as you pay a penalty for over-contributing, as well you only have a short period of time to fix any over-contribution error without tax consequences.
- Remember that contributions you make between January 1, 2016 and February 29, 2016 are claimable on your 2015 income tax return, so make sure you give your tax preparer the RRSP tax slips you receive for the first 60 days of 2016.
- Even if you make an RRSP contribution now, you don’t have to necessarily claim it on your 2015 tax return, as you can choose to carry it forward to a future return. This would be the case where maybe you expect to be in a higher tax bracket next year. By making the contribution now you can take advantage of tax deferred growth of the investments within your RRSP. In this case the CRA will show on your notice of assessment an amount called “undeducted RRSP contributions”. Make sure to pick those up in the following year as many times people miss that.
- How much is your RRSP worth? Yes you can have an RRSP that is too big (good problem to have for sure)! If your RRSP grows too big, when you turn 72 you have to start withdrawing the required minimum amount and for some people this amount puts them into an OAS clawback position, thus increasing their taxes owing in the future. Now with TFSA’s you have alternatives for tax deferred investment growth.
- What’s in your RRSP? Do you understand what the investments are? Do the investments fit with your risk profile? Do you know how much your investment is returning you (or *gasp* losing) over the short term and longer term? What are the fees you are paying on your RRSP account or hidden in your investment products?
Probably the biggest consideration is whether you need an RRSP at all? Here are some questions to ponder: What are your long term plan and retirement goals? You have a plan, right? Maybe a TFSA is the better way to go? Maybe you don’t need tax-deferred growth at all at this stage of your life? What would your retirement look like right now based on your current net worth, and what can you do to change that? Unfortunately there are only two things that are in your direct control that will impact your retirement – how much you save, and how long you are going to work. And the reality of today’s world is that there are A LOT of people working longer and longer in life, some by choice, more not. We’re living longer so our retirement fund has to last longer. Having a plan today will help you achieve your retirement goals whether that’s 5 or 25 years from now, so please visit your investment professional and/or your Chartered Professional Accountant to discuss your plan.