RRSP Questions Answered

As the RRSP contribution deadline approaches each year, I’m asked a variety of recurring questions from people trying to understand the various options and strategies. Due to the recent economic struggles, people are taking more of an interest than ever in ensuring they make the right decisions. I’ve compiled a list of the most common queries that I’ve heard regarding this. See if you are asking some of these same questions:

 

Is it best to wait until February before I make my annual contribution? Often, no. Although many people put this off until the final few weeks, making even contributions throughout the year can protect you from being forced to buy in at a high price point if the market is in an upswing come February.

Should I put my money into an RRSP or a TFSA? The answer to this question depends on your current and projected post-retirement marginal tax rates. Having said that, it’s not a simple answer and each person’s needs should be analyzed by a financial planner. Every situation is different and the tax rate benefits or drawbacks may be offset by things like income splitting opportunities. Often, the best answer is contributing a certain percentage to each type of fund.

I haven’t contributed as much as I should have to my RRSP over the years. Is it too late? Definitely not! One of the best features of the RRSP is that your unused contribution room carries forward. The longer that your money is in an RRSP growing tax free the better and catching up now will help you get back on track to meeting your retirement goals.

Am I too old to contribute to my RRSP? You can make contributions to your RRSP right up until Dec 31st of the year that you turn 71. Even if you only have a few contribution years left, contributions can still make a significant impact in your retirement plans.

I’d like to make a larger contribution to my RRSP now while the market is down but don’t have a lot of extra cash. Is there anything I can do? For many people, an RRSP loan might be the right answer. Instead of making a regular contribution each month, the investment company puts a lump sum payment into your RRSP now and you repay a similar amount each month to pay it off. The full amount goes into your RRSP now, taking advantage of the lower market values. To find out if an RRSP loan would work for you, it’s essential to review your financial situation with a trusted financial planner.

I worked with a company for 25 years and built up a pension but now I’m retired. Where is my pension and what can I do with it? The rules governing each pension are different. There are generally lots of different options available to you and it’s important to make sure that your pension is being properly managed. You can often transfer your pension to your own financial planner who can explain the different options to you and make sure that it’s in the right place.