We are only a few days away from the deadline (March 1, 2006) for RRSP contributions for the 2005 fiscal year. The following are strategies that will enable you to maximize RRSP income at retirement.

• Refer to your notice of assessment received from the federal government for the 2004 taxation year to know how much you can contribute to your RRSP. Admissible RRSP contributions for 2005 are calculated as follows : the lesser of 18% of earned income in 2004 or $16,500, minus the pension adjustment for 2004 if you were a pension plan member, plus unused RRSP contributions from previous years.
  
• If you are anticipating a major change in your income between 2005 and 2006, ask your financial planner whether you would be better off contributing to an RRSP for the 2005 or 2006 taxation year . All contributions made to an RRSP within the first 60 days of the year can be deducted from either the current or the previous taxation year.
  
• Start an automatic savings plan. Regular RRSP contributions will help you achieve your financial goals faster.
  
• If necessary , borrow to invest in RRSPs as long as the loan is repaid in a reasonable time frame - a year at the most. If you receive a tax refund, put it towards your loan in order to repay it faster. Remember that the interest on RRSP loans is not tax deductible.
  
• If your spouse is likely to have a lower income than you at retirement, consider contributing to a spousal RRSP. This strategy results in the higher income spouse claiming the tax deduction for the contribution, while the lower income spouse uses the funds as income at retirement and may be taxed at a lower marginal tax rate, thus reducing the household tax burden twice.
  
• Contribute at the beginning of the year. Invest in your RRSP as soon as you have the available cash flow. In the investment world, time is money . The more time you have, the longer your investments will grow inside your RRSP where they are tax-sheltered.
  
• Review your investment strategy and ensure that your investments match your risk tolerance. Also, note that there is no longer a foreign content limit on your RRSP investments.

An RRSP is one of the most effective and flexible tax planning strategies available to you. It allows you to maximize your income at retirement or achieve other various objectives such as purchasing a home or returning to school. It is a good idea to contact your financial planner who can help you set up an RRSP that's right for you.

Renée Trépanier, CFP, Education and Communications Manager
SISIP Financial Services, Ottawa

 

This article is for general information purposes only and is the opinion of the writer.