Is there really a deadline for RRSP contributions? What is all the hype about?
The short answer is yes, and the long answer is maybe! But before I go into what I mean by ‘yes’ and ‘maybe’, lets review what an RRSP is.
RRSP is short for Registered Retirement Savings Plan and is a savings vehicle the federal government created back in 1957 to help Canadian save for their retirement years. Over the years we have seen changes, but the premise behind it remains constant, putting monies aside so you can live comfortably (whatever comfortable means to you) in your retirement.
Besides having a nest egg in retirement, the RRSP allows you to (1) reduce your personal taxes during the years of accumulation; and (2) shelter the growth within the RRSP until you convert it into an income stream – basically the taxes on the growth is deferred until withdrawal. Unless you are super rich, your income during retirement should be lower than your working years, so your personal taxes will be lower.
Many people forget that they received special tax treatment during their contribution years and become disenchanted when they are required to pay taxes on monies withdrawn from the RRSP. So, a word of caution, do NOT use your RRSP as your emergency funds account. Maintain a separate account for this purpose.
So, what is the March 2nd deadline hype all about? Besides being a marketing ploy, it is a reminder to you that our Federal Government has given you until this date to make a contribution to your RRSP if you want to reduce the amount of personal taxes you will pay on your 2019 total income.
Not sure how this affects you? Speak with your accountant and/or your Financial Advisor for assistance at least one week before the deadline, because you must make the contribution no later than March 2nd.
You may be asking, “Do I need to contribute to an RRSP?” or “Is an RRSP my only choice for retirement savings?” You do not need to contribute to an RRSP, but you should have a Retirement Savings Plan (RSP), not to be confused with an RRSP which is governed by the Federal Government, a Retirement Savings Plan is not registered, and therefore has no restrictions, it also is not tax sheltered.
With the creation of the Tax Free Saving Account (TFSA), Canadians have been given another choice for investing. I use the word choice rather than alternative, because it can be used in conjunction with the RRSP to build your retirement income portfolio (more on this in my next blog). Speak to your Financial Advisor to design a Retirement Savings Plan that is right for you.