The RRSP deadline and some final considerations
Just like Cinderella needed to leave the ball, time is running out for the 2011 RRSP contribution.
If you don’t already know, the last day to contribute to your RRSP for the 2011 tax year is February 29, 2012.
As we close out this “RRSP season”, here are some things to consider for the 2011 tax year:
- The maximum contribution limit for 2011 is $22,450. If you did not use all your RRSP contribution room for years 1991-2011, you can carry forward the unused amount to 2011 – so your deduction limit for 2011 could be more than $22,450.
- Remember you get a tax deduction when money goes in.
- If you don’t know what to invest in, I think you should just contribute the cash anyway. You can always figure out where that money should be allocated at a later date.
- Contributing to your RRSP doesn’t mean picking a mutual fund.
- If you’re considering investing in some “hot” mutual funds, I suggest you don’t. Past performance is just that. Besides, what’s hot now is likely to be cold later.
- If you’ve made a decision to contribute to your RRSP into some mutual fund or exchange traded fund (ETF), double-check and understand the fees you are paying for fund performance. Paying fees, especially high fees, will eat into your portfolio value over time.
- If you have credit card bills that are due – a balance you can’t pay off this month or next – forget what the ads on TV tell you. I don’t think you should contribute to your RRSP. I think paying off your credit card may make more sense.
- If you know for sure you will be a lower tax-bracket in retirement that your working years, an RRSP makes great sense.
- If you’re in a lower-to-moderate income bracket, say less than $40,000, I think the TFSA is better than the RRSP for a retirement vehicle. Forget the RRSP altogether. Experts also think this way.
- If you make an RRSP contribution and you’re getting a tax refund back because of it, avoid the temptation of spending that refund. If you spend your refund you are defeating a big benefit of the RRSP, the tax deduction.
- You can make “in-kind” contributions to your RRSP, from other accounts.
- Remember you have to pay taxes when money comes out. You cannot own an RRSP after age 71. RRSPs must be converted to a RRIF, an annuity or investments need to be sold and monies withdrawn. You can read more about those options here.
Lots to think about I know, and this list is just a start! The know-how for RRSPs can be overwhelming.
My bottom line, remember some of these tips if you can but take some time to learn how RRSPs really work and how they can benefit you for your financial situation. I’ve been reading about this stuff for years, and I’m still learning lots, how to tailor RRSPs to my financial situation. When in doubt, ask questions, lots of questions. Nobody cares more about your money than you do.
If you would like more reading on this subject, check out Larry MacDonald’s recent article in the Globe and Mail.