RRSP

As every year passes by it always seems to be a last minute rush for Canadians to contribute to their Registered Retirement Plan (RRSP). If you wait till March 1st to make your contribution, do you know that you may be potentially missing out on other money generating strategies within your RRSP?

We believe the following strategies are essential to maximizing your RRSP:

Early Contributions
If possible, contribute to your RSP as early in the year as possible instead of close to the deadline. Tax-deferred compounding can make those early dollars grow dramatically.

Maximum Contributions
Take advantage of compounding and get the maximum tax break by contributing your limit. For 2011, the maximum contribution is 18% of your income in 2010 to a maximum $22,450. Please remember it is $22,450 less any pension adjustment or past services adjustment in 2010. If you did not contribute to a maximum in subsequent years you may carry forward any unused contribution room until the age of 71.

Monthly Contributions
If it is not possible to make your maximum contribution at the beginning of the year, the next best approach is to make regular monthly contributions. Many investors find it easier to reach their annual RRSP maximum by making contributions every month. It may be easier if the contribution is deducted directly from your bank account or by making automatic deductions from your payroll into a Group RSP. It is always a good idea to increase your monthly contribution if your income rises.

Spousal RRSP Contributions
A spouse with a higher income can contribute to a spousal RRSP that is owned by the lower income spouse. It benefits the spouse with the higher income during this tax year and the lower income spouse when it is time to withdraw funds during retirement. This is a great way to reduce your combined tax rate.

Borrowing to Contribute
An RRSP loan to top off your contribution to the limit may also be an option, as the compound growth of your investments may surpass the borrowing costs. Plus, you would be able to use your tax refund to pay for the interest and/or principal of the loan.

Diversifying your Portfolio
We are taught from a young age not to put all our eggs in one basket by diversifying your portfolio, you help protect yourself against fluctuations in any one market sector When the technology bubble burst in 2000, anyone heavily invested within that one market sector had their entire life savings eliminated in one fell swoop. Being diversified during a scenario such as this would have saved you money and stress.

Resist withdrawing from your RRSP
It may be tempting to withdraw some money from an RSP for a new TV or a Car, but consider the consequences before you do so. Even though the withholding tax could be as low as 10%, you still may have to pay much more when you file your return. Be aware any money withdrawn is added to your marginal tax rate. Under special circumstances you may access money from your RRSP without consequences. Two such circumstances are the Home Buyer’s Plan and the Life Long Learning Plan.

The importance of designating a beneficiary
Designating a beneficiary to your RRSP is vital to remove timely delays and additional costs associated if an estate is probated. It is important to speak to a professional about taxes and other consequences.

Consolidate your investments to one RRSP account
It is hard to keep track of how all of your investments are doing unless it is your full time job. By consolidating several RSP accounts into one, you will have an easier time doing so. It also eliminates the clutter of having multiple statements and hoping you didn’t lose anything.

Get expert help
Having the trusted services of a Care Insurance Advisors will make a difference in your long-term investment outcome. Knowing all the ins and outs doesn’t have to be put on your shoulders. Let us show you how an Advisor can help you achieve your dreams, get started by contacting us.



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