February 3, 2015

Retirement Savings Time

Contributions to an RRSP plan are deductible from income tax so they offer a great way to make the most of your money. The 2014 RRSP contribution deadline of March 2nd is fast approaching.

For 2014, the RRSP maximum contribution is the lesser of 18% of your 2013 earnings and $24,270. In 2015, that maximum increases to $24,930.

The Tax-Free Savings Account (TFSA) is another savings vehicle worth considering. Contributions are not tax deductible but withdrawals are not considered taxable income. Contributions can be made up to $5,500 and funds are not locked-in. This offers access to funds in the event of an emergency or change in investment priorities.

Which is Better?

Depending on your tax bracket, a TFSA may offer more tax relief than an RRSP. If you have a lower income now than what you project for retirement, then a TFSA may be a better option. This is because you pay income tax on the lower current earnings as opposed to an RRSP where you will pay income tax on the higher amount withdrawn in retirement.

Making Contributions

Set up an automatic withdraw plan to make smaller monthly contributions or ask your employer to payroll deduct contributions. This has the added advantage of immediate tax savings instead of waiting to file your income tax.

If you have an RRSP plan at work, check to see if contributions to the plan are matched by your employer (usually up to a set percentage of earnings ex. 2%). Matching contributions immediately gives you a 100% return on investment. Unless there is a true financial constraint preventing any sort of contribution, there is no need to leave this benefit on the table.

Review the Details

If you have an RRSP, remember to periodically review the details especially the beneficiary designation. In the event of a discrepancy between your will and your RRSP designation, the RRSP designation will stand.


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