For most people, an RRSP is that thing you’re putting money into to save for retirement. 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. An RRSP is a Registered Retirement Savings Plan that is designed to help you save for retirement. Your RRSP can contain a variety of different investments including mutual funds, term deposits and savings accounts. The benefit is that your contributions are tax deductible and your investments are tax sheltered – this helps to accelerate their growth.
Think of an RRSP like a personal pension plan. For people who don’t have a pension plan to fall back on, it’s the best opportunity to build a personal pension, or to compliment an existing pension plan.
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. Chat with your financial advisor to get a contribution plan in place that works for you.
Tip #2: Automate.
Automating your contributions will certainly ease the stress related to RRSP contributions. Do a little each month so you aren’t frazzled come February. 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 some savings to throw at your plan, an RRSP ExpressLoan can certainly be a good route to go. Talk to your investment advisor to figure out if that is something that will work in your favour. If you have a refund coming your way after tax time, you can use that to pay down or pay off that loan.
Tip #4: Use your refund wisely.
It is always beneficial to use your refund to put you further ahead financially rather than using it to pay for a vacation or simply spending it on ‘stuff’. Reinvesting that into your RRSP is a great option. It would also be good to think about paying off high interest debt such as credit cards or personal loans before allocating that money elsewhere.
Tip #5: Take advantage of other tax savings plans.
You can also take advantage of other tax savings plans offered in Canada by investing your tax refund into a Tax-Free Savings Account. For 2018, the maximum amount you can contribute is $5,500 into various investment options available much like an RRSP. However, the big advantage is that there are no tax penalties for early redemptions so this would be a great place to invest for both short term and long term savings and is 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.
Meet with your financial advisor who can walk you through all that you need to know.