Envision Financial

National Treasure: Secrets of your RRSP contributions

Nobody thinks of Registered Retirement Savings Plans (RRSPs) as being shrouded in mystery, cloaked behind a veil of secrecy, the subjects of hushed conversations behind doors that are left purposefully ajar.

There certainly are a lot of myths and misconceptions when it comes to investing, but RRSPs are not a riddle from a Dan Brown novel.

You invest money in them, get a tax refund from them, your money grows tax-free within them, and when you retire, you can withdraw the funds and they become part of your taxable income.

So it’s not like there’s anything particularly tricky about RRSPs. Still, here are five really useful features that you may not know about.

Make early contributions

Most of us who know a tiny bit about saving for retirement know the value of starting early and if you don’t know about that old adage, here it is: “Start early.” But how early?

When you get that first job is a great time to start contributing to your RRSP: you don’t usually have a lot of bills, debt or other financial obligations.

Plus, you want to start building the right habits early. Your finances don’t need a “gap year” where they go exploring the world. Sure, you want that financial freedom in your 20's and nobody is suggesting an ascetic youth, but be sure to balance it with some good saving habits.

By far the biggest benefit to starting early is the power of compounding interest over time. If you saved just $50 a week over the course of 45 years, with a 5% interest rate, you'd end up with over $435,000 saved up. The compound interest over those 45 years has nearly quadrupled the amount you've put in, and that's with a mere 5%.

You can't go back in the past and start saving back when you were 20, but you can start today and that's a lot better than starting 5 years from now, or ten years from now, or twenty years from now.

The secret is to save early and save often.

Borrow to top up your RRSP contribution

If you are not able to max out your RRSP contribution by the deadline (the first 60 days of the current year: March 1 in 2018), it could be advantageous for you to get a top-up loan. Depending on your contribution room and income tax bracket, you could get a substantial tax refund, which you would apply to the principal of the loan.

The benefits of the loan are not only in the tax refund that you get but also in the long term compounding interest rate.

If you are considering using a top-up loan to increase your RRSP contribution this year, make sure you talk with a financial advisor to determine if it’s the best solution and that you have a repayment plan put in place so you aren’t increasing your financial burden rather than alleviating it.

Buy Your First Home or Go Back To School

If you are buying your first home or going back to school, you can borrow money from your RRSP as a loan, which you have a number of years to repay, interest free. If you started saving early (and often), you can plan your home-buying or education strategy based on your RRSP savings.

Home Buyers Plan

With the HBP, you can withdraw up to $25,000 ($50,000 per couple) tax-free towards the down payment of your first qualifying home. You have to pay the money back with zero interest over a 15-year period (no problem if you’re making regular contributions) and if you miss a payment, it will be counted as income. But, especially in our highly competitive real estate market, this could be the lifeline for home ownership dreams all over British Columbia.

Lifelong Learning Plan

Are you wanting to go back to school but tuition costs have you second guessing your dreams? With the Lifelong Learning Plan (LLP), you can draw up to $10,000 from your RRSP per year for two years to help cover the cost of your education, and repay it within 10 years.

Carry forward unused contribution room

RRSPs are not bottomless holes where you can dump your money. Every year, you have an assigned amount that you can contribute and that is known as your contribution room. Your annual contribution room is the lesser of:

  • 18% of your earned income for the previous tax year or;
  • The maximum contribution amount set by the CRA for the current tax year ($26,010 for 2017).

What happens to that unused contribution room? Is it lost to the void forever?

No, you can carry forward unused contribution room indefinitely so if you’ve not been able to max out your RRSPs in the past and you suddenly get a significant pay increase, inherit some money or win the jackpot, you are not limited by this year’s contribution limits.

You can find out how much contribution room you have by reviewing your last year’s Notice of Assessment or by contacting Canada Revenue.

Defer your RRSP deductions

You also don’t have to deduct your RRSP contributions in the same year that they were made. Waiting to claim them in a future year may be beneficial if you are in a lower bracket currently but think that you will end up in a higher one.

Talk to a financial advisor

There are so many ways that you can take advantage of your RRSP. When you scratch the surface, you find that there is so much more to them. They are an incredibly flexible tool that can help you save for long term goals, while helping you with some shorter term ones along the way.

Nothing beats personalized advice.

To make the most of your RRSP, talk to an expert, someone who can look at your unique financial situation and help you create a strategy to help make the life you dream of a reality.


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We encourage you to visit an investment advisor at any of our branches for more advice on how to reach your goals!