The RRSP contribution deadline is fast approaching, and if you are like most people, you’ve left it to the last minute.
Banks are fully staffed at this time to deal with eleventh-hour frenzied contributors. Most financial institutions even have later hours as the deadline approaches and advisors are available around the clock to answer your pressing questions. But before you seek out the experts, there are a number of things you can do right now to make sure you get the maximum tax benefit owed to you.
Click here for information on this year's RRSP contribution deadline.
Step 1: get your tax slips together
Make sure you know exactly how much you contributed to your RRSP this year.
That includes individual contributions and those set up thorough your employer, such as a employer sponsored RRSP or group RRSP plans. You also need to collect your T5 slips to know how much dividends your stocks (those not held in a registered account) paid this year. You can get your tax slips through your HR department and directly from your bank.
Many online brokerages have already posted them to your profile for you to view and print out. Once you know how much contributed you can decide if making a further donation will allow you a better tax benefit.
Step 2: check last year's Notice of Assessment (NOA)
Every person in Canada who filed his or her taxes last year will have received a NOA. This details your RRSP deduction limit for the current year. If your slips don’t add up to this amount, you know you’re well within your limit.
Step 3: know your salary
Take a look at the last pay stub you received for the year to see how much you made and how much tax you paid. Add in any profits you made from selling equities and dividends you collected. By visiting the Canada Revenue Agency website you can see the tax bracket you fall into. Deduct from your gross salary how much you have contributed. If that number is close to the next lowest bracket it would be in your best interest to contribute to your RRSP to get you into a lower tax range. For example if you made $46,000 last year, by contributing $2,050 more, your salary will fall under a lower tax range and result in a bigger tax refund. As a bonus you'll also boost your RRSP savings.
Step 4: borrow to invest
This is a personal choice, but sometimes if the tax benefit is big enough it might make sense to borrow to contribute to your RRSP.
To do so, you use the tax refund you receive to pay the loan down. Generally your tax refund should always be invested right back into your RRSP, but in this case you should pay your debt off first. Make sure it’s a low interest loan you can afford to carry as you wait for your tax refund. Also, have a plan to pay off the remaining balance ASAP.
If possible, make a plan for 2016 and set up monthly contributions to avoid this situation next year.
RRSP FAQs
Q: What's my RRSP contribution limit?
A: Check your NOA, but generally 18% of your income up to a maximum of $23,820.
Q: What's the penalty if I over contribute?
A: One per cent tax per month on your unused contributions that exceed your RRSP deduction limit by more than $2,000.
Q: What if I have no money to contribute this year?
A: You can carry over 100% of the room.
