With a New Year we are always presented with an opportunity to revisit our current financial position and determine our goals for the year ahead. Retirement planning always seems to be one of the items that rises to the top of the list this time of year and where many Canadians try to take advantage of the Registered Retirement Savings Plan (RRSP). Below are some tips to make the most of your RRSP as you attempt to maximize your retirement, while minimizing your income tax footprint.
Plan your retirement goals
What kind of lifestyle do you want to live in retirement? Start making goals now, and meet with your financial advisor to ensure your security as you enjoy a long and fulfilling retirement.
Invest early for higher growth
Investing in your RRSP well in advance of retirement means your money has more time to benefit from tax-sheltered growth. Some money invested in an RRSP is taken from pre-tax earnings, making contributions can reduce overall income taxes by deferring them to a later date, at which time you may be in a lower tax bracket.
Leverage your tax refund
Making contributions to your RRSP is most beneficial when your marginal tax rate at retirement is expected to be lower than your tax bracket during your working life. Remember that RRSP’s are not tax-free, they are tax deferred – so, as tempting as it might be to spend your tax refund, reinvesting it will work to your long-term advantage.
Contribute now, deduct later
You do not have to claim deductions on your RRSP contributions in the same year that you make them. If you are expecting a future increase in taxable income that will push you into a higher tax bracket, you can defer claiming deductions until later to benefit from a higher tax refund.
More room to invest in your future
Excess contribution room left over from contributions made under the annual limit can be carried forward indefinitely for use in future years. Take advantage of the additional contribution room to invest more toward your retirement and benefit from a larger tax refund.
Choose the account that’s right for you
Depending on your short- and long-term goals, investing in a tax-free savings account (TFSA) might be better suited for you. Contributions made to a TFSA are not tax deductible – you won’t receive a tax refund – however, withdrawals are not taxed either. The money you invest will grow tax-free for as long as it remains in the account.
2017 RRSP Limit
Your 2017 RRSP limit is based on 18 per cent of your 2016 earned income, up to a maximum of $26,010 (up from $25,370 in 2016), less any pension adjustment. To hit the maximum RRSP contribution for 2017, you would have had to have earned income in 2016 of at least $144,500.
To know the exact amount of your contribution limit, please refer to the “RRSP Deduction Limit Statement” section of the notice of assessment sent each year by the Canada Revenue Agency.
This year, the RRSP contribution deadline for the 2016 tax year is March 1st, 2017.
2017 TFSA contribution limit
The 2017 TFSA contribution limit will be once again $5,500. If you have yet to open your first TFSA, due to the unlimited carry forward associated with TFSA contribution room, you can now contribute a total of $52,000 to your TFSA, provided you were at least 18 years of age in 2009 and a resident of Canada since that time.
If you are interested in speaking with our in-house wealth advisor regarding any of your investment or life insurance needs please contact the office and ask to speak with Ryan Brown at extension 130 or email email@example.com directly. He would be happy to discuss your current situation and assist in developing a long-term personalized strategy that addresses the needs of your financial life.