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Financial Fitness – February 2019

Planning ahead for your retirement can be complicated, the benefits of making maximum contributions to your Registered Retirement Sings Plan (RRSP) are straight-forward.

First, enjoying the immediate benefit of a tax deduction, which often results in a nice tax refund, is a clear reason to contribute. The median Canadian making their maximum RRSP contribution will receive a deduction worth $3,570. Adding to this, the affect of the tax-free, compound growth on your investments makes a huge difference on long-term savings. What if you can’t come up with the money to contribute or you’re saving for something? Well in that case, there are a couple of strategies that can be used to get your savings started.

Borrowing to save – Have you considered taking a loan to boost your contribution? Not only can you get a jump start on saving, but you can use the potential refund to pay off some of the loan. This is a great strategy for those who are in a higher tax bracket, but cash is tight near the RRSP deadline.

Regularly scheduled contributions – Why wait until the deadline? Start a regular contribution so that you can spread out the pain of putting that money away for the future. All those smaller contributions can still add up to a nice refund at tax time.

Spousal contributions – If you are expecting to earn more in retirement than your spouse, you should consider making spousal RRSP contributions. These contributions use your deduction room but when they are accessed at a later date, they are attributed to your spouse as income. This can be a smart strategy to lower your overall tax bill.

Multiply your savings – If you are a first-time homebuyer or are looking to go back to school, you should look at utilizing the power of your RRSP. A first-time homebuyer, for example, can withdraw $25,000 from their RRSP to buy a qualifying home. This means that by contributing $25,000 to your RRSP, you would not only have this ready for your down payment, but you would likely have also received total refunds of $7,050. Wouldn’t that be nice for closing costs and moving expenses!

Talk to your advisor, the deadline is March 1st!

*The 2015 median Canadian income was used in calculating the figures contained in this article. All statistics were provided by StatsCanada.

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