Topping Up Your RRSP

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BY: FAZAAD BACCHUS 

It’s that time again when most people try to top up their RRSP so as to reduce their taxes payable from the previous year. Typically, you have up until March 1st, 2018 to make any payments, however, you should try to get it done earlier to avoid last minute rush. I am no tax accountant and will not venture into tax advice; however, there are a few things to consider.

First of all, is topping up your RRSP a good thing to do?  The first thing you want to make sure is that in topping up that you are not over contributing. Typically, we are allowed to contribute a maximum of 18% of our previous year’s income unless you have contribution room. If you haven’t been making a lot of contributions it’s quite likely that you do have the contribution room. If you look at your Notice Of Assessment you will be guided as to the amount that is available to you. Paying more than that amount into your RRSP will result in an overpayment which carries a penalty. There is a lifetime limit of $2,000 and anything over that is charged at 1%.

You need to decide if you will use up your contribution years in arrears now or in the future. If your income is low in the last year and you expect it to rise significantly then it might better to wait and make your deposits in respect of a high year. The main reason is that you want to put as much as possible in the higher earning years to be able to maximize your tax returns. So as an example, if you earn $100,000 in 2017, you would be able to claim approximately 46% of your contribution whereas if you earned half as much, you will be able to claim much less.

You have the facility to make contributions in the first sixty days of the year. However, these payments do not bind you to claim them for 2017. You may choose to claim them for the previous year or the forthcoming year. In speaking with your accountant, he will advise which year depending on expectations of income. If he believes that you should make a contribution and you don’t have the savings, it may beneficial for you to consider a small loan, this will help you offset taxes due and at the same time pay monies into your RRSP. There are many companies who will lend you an unsecured amount payable into your RRSP without you having to qualify.

And finally, when you buy your RRSP, what should you put the money into? There is no rush on the very day that you buy, it can be in any type of financial instrument as long as it is registered as an RRSP. You can also deposit into your regular RRSP. Eventually, you will want the best return for your money while lowering your risk. This will require the services of a financial advisor, you should make sure that you assess the amount of risk that you can tolerate and invest accordingly. I always say that it is better a return of principal than a return on principal, having both would be best, but you may not be able to do it alone, so ask for help.

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