Planning Your Retirement

How to Maximize Your RRSPs

• Contributing to an RRSP is doubly advantageous—your contributions entitle you to tax deductions, and your investment income (interest, dividends and capital gains) grows in a tax shelter until you withdraw the amounts accumulated.
• The sooner you begin to contribute, the more advantageous your RRSP. Your investment income will build up over time to provide you with additional resources at retirement.
• Contribute regularly. It is easier to make a small contribution every month than to contribute a larger amount at the end of the year. In addition, if you make your contributions at the beginning of the year, your money will start working for you sooner, and your RRSP will grow more quickly.
• Contribute every year. Failing to contribute for a year may deprive you of considerable investment income generated by interest or a compound return.
• Invest the maximum allowable amount to obtain the maximum tax refund.

  The maximum amount you may invest in your RRSP this year is determined on the basis of the income you earned last year. You may contribute up to 18% of that income, up to a maximum of $19,000, less the pension adjustment (PA)—which is equal to your contributions to your employer’s retirement plan. The amount you may invest is indicated on the notice of assessment provided to you by the Canada Customs and Revenue Agency.

• If you have not contributed the maximum allowable amount in previous years, you may utilize your unused contribution room now and increase the amount you save.
• You may be well advised to borrow so that you can contribute the maximum allowable amount, because your tax refund and your investment income could exceed the interest on the loan.
• Take advantage of a spousal RRSP, which allows either spouse to contribute amounts on behalf of the other. The contributing spouse may deduct the contribution from his or her income. However, the payments will eventually be withdrawn by the spouse on whose behalf the spousal RRSP was established.

  If your spouse does not have any income from employment or if your spouse’s income is lower than yours, your contribution may result in a more advantageous tax deduction. When the funds are withdrawn, income tax will be deducted from your spouse’s income, but since that income will be lower than yours, the taxation rate will be lower, too.