REGISTERED RETIREMENT SAVINGS PLANS (RRSP)

Registered Retirement Savings Plans were originally designed for Canadians who did not have pension plans.  In essence the RRSP became the pension plan that an individual funded themselves.

With continued skepticism that the government will not be able to help support an individuals retirement needs, the RRSP is one of the most important savings vehicle for your retirement.  Not only are your contributions tax deductible, but all of the income earned on those contributions compounds on a tax deferred basis.

Maximizing your RRSP Opportunities

The key to maximizing your RRSP opportunity is to contribute as much as you can, and as young as you are able. You’ve got a couple of months left to contribute for 2009 – the deadline is March 1, 2010 – so here are some tips to help you reduce your tax load and build a nest egg for retirement.  

Maximize your RRSP contribution.

The best strategy is always to 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 inside your RRSP. Your personal maximum allowable contribution room can be found at the bottom of your Notice of Assessment from the Canada Revenue Agency (CRA) which you would have received after filing last year’s income taxes.  

Contribute at regular intervals.

Setting up an automatic monthly contribution to your RRSP has advantages over contributing a lump sum once a year.  Here’s how. By investing $250 regularly each month at a compound annual return of 8%, you’ll have $372,590 in your retirement nest egg 30 years from now.* But, if you wait until the end of each year to invest a $3,000 lump sum, you’ll have only $339,850. By investing monthly, you’ve added $32,740 at retirement without contributing a dollar more.  

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.  

We can provide you with more useful insights into RRSPs. With the right RRSP strategies wrapped in a sound, overall financial plan, you can save on taxes every year and retire with more.  

*The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to indicate future returns on investment.