With tax season right around the corner, it is time to start considering your Registered Retirement Savings Plan (RRSP) contributions for 2021. There are many elements to consider when it comes to your RRSP, such as deadlines, contribution room, tax strategies, and Spousal RRSP’s. Here, we have outlined a few simple strategies to get you thinking about your RRSP. 

Maximizing the value of your registered plans by making annual contributions is an important wealth planning strategy. This year’s deadline to contribute to your RRSP is fast approaching. Contributions you make to your RRSP in the first 60 days of the year can be used to offset income from the previous year or the current tax year. 

The last day to contribute for the 2021 tax year is March 1st, 2022.

Contribution Room

Each year, you can contribute up to 18% of your previous year’s income into an RRSP, to a maximum of $27,230 for 2020 and $27,830 for 2021. If you happen to miss contributing all of your room in a particular year, that room can be carried forward and contributed to your RRSP in another year. Your Notice of Assessment will provide you with the cumulative room available in your RRSP.

Tax Strategies

One reason to contribute to your RRSP is the tax deduction or refund you will receive come tax season. There are several ways you can contribute to your RRSP, including a lump sum or scheduled contributions. 

In Canada, tax rates increase as your income increases. A common strategy is to make your RRSP contributions in your higher income-earning years. For example, suppose you plan a parental leave, leaving you with a lower income for the year. In that case, it can be suggested to put your money into a non-registered investment or a TFSA and save the RRSP contribution for a different year, when you can further benefit from the tax break. 

Another common planning consideration is your career path. In the early stages of your career, your income may be quite a bit less than it will be once you approach your peak earning years. You may want to contribute to a TFSA in those earlier career years and save the RRSP room for when you are in your higher income-earning years.

Spousal RRSP

A Spousal RRSP allows you to contribute to your spouse’s RRSP but provides you with the tax deduction and comes out of your contribution room. However, the income at retirement from the Spousal RRSP will be taxed on your spouse. This can help reduce the overall family tax burden at retirement, particularly if one spouse earns significantly more or has more assets than the other. This provides flexibility for the future.

When it comes to your RRSP and ensuring you are maximizing the value of your registered plans, there is a lot to consider. Working with an advisor who understands your objectives to build your financial plan is an excellent start to ensuring you are maximizing the benefit of your contributions, both in the short term and in the long term.

If you would like to have a conversation with one of our wealth advisors about contributing to an RRSP or TFSA or building a plan to make sure you are implementing the right strategy for your vision, give us a call.