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5 Quick Tips for RRSP Season

For most people, a Registered Retirement Savings Plan (RRSP) is that thing you’re putting money into to save for retirement. And you’re right, it is. But beyond that, many people’s understanding of RRSPs can be kind of fuzzy. Read on to find out what you can do this RRSP season.

What is an RRSP?

A common misconception is that the RRSP is just a type of investment like a mutual fund, but it’s not.  Think of an RRSP like a personal pension plan.  An RRSP is a government incentive designed to help you save for retirement.

Basically, you can to save up to 18% percent of your annual income in your RRSP to avoid paying at a higher tax bracket.  The benefit is that your contributions are tax-deductible and your investments are tax-sheltered – this helps to accelerate their growth.

You can invest the money saved in a variety of different financial products like mutual funds, term deposits, and savings accounts. But how much should you save and will it be enough? Here are 5 quick tips on how to take advantage of an RRSP.

Tip #1: Contribute

Don’t delay just because it seems too technical or complicated. If you start contributing each month, at the end of the year, it isn’t so overwhelming. Even smaller contributions like $50 monthly can add up over the long term. If you feel like you can’t afford to save, chat to our Investment Team to get a contribution plan in place that works for you. We’ll help you find the wiggle room.

Tip #2: Automate

Automating your contributions will ease the stress of the RRSP deadline on March 2, 2020. Rather than scrambling come February, you’ll sail through RRSP season by setting up scheduled recurring transfers the year before. Try out our RRSP calculator to get an idea of how much you could contribute and how it could grow.

Tip #3: Consider a loan

If you haven’t been putting anything aside and don’t have any savings to throw at your plan, a RRSP loan can be a good route to go.  If you have a tax refund coming your way, think of the loan as an advance then use your refund to pay down or pay off that loan. But talk to your investment advisor to figure out if that is something that will work in your favour.

Tip #4: Use your refund wisely

The adult inside us knows that the right thing to do is to save our tax refund rather than spend it on ‘stuff’ or a vacation. And yes, it’s much easier said than done but investing that money into your RRSP is a great option. Another very adult approach is to pay off high-interest debt like credit cards or personal loans before allocating that money elsewhere, like your RRSP.

Try your hardest to pretend that you never received a refund in the first place. And if you can’t, then make a compromise, treat yourself a little and put away the rest into your RRSP.

Tip #5: Take advantage of other tax savings plans

You can also take advantage of other tax savings plans offered in Canada like a Tax-Free Savings Account (TFSA). For 2020, the contribution allowance is $6,000. The big advantage of a TFSA is that there are no tax penalties for early redemptions so this is a great place to invest for both short term and long term. Plus, it’s a perfect complement to an RRSP plan.

Above all, don’t let the enormity of RRSP season stop you from getting on track to the retirement that you want. It’s better to start later than never.

The stuff we have to say.

Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products.  Only deposits held in Canadian currency, having a term of five years or less and payable in Canada are eligible to be insured under the Canada Deposit Insurance Corporation Act.  Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing.

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