RRSP 2018: Contribution Deadline, Limits, Need to Know
Oh boy, today marks exactly two weeks before your RRSP Contributions for the 2017 tax year are due! March 1st, 2018 is the last day you can contribute to save on taxes this year. And if you're like the many other Canadians looking to save on their taxes, invest for your future and diversify your ways to produce wealth, then this post is for you!
What is an RRSP?
Registered Retirement Savings Plan. You must have seen RRSP, RSP, etc mentioned around at your banks, investment advisors and more. But many confuse this account for an investment product!
So what is it really?
An RRSP is simply an investment vehicle, an account, that your financial institution opens and registers with the CRA. That allows you to contribute your savings into an account to invest in a range of different products like bonds, stocks, real estate investment trusts, and more.
What's special about it?
By registering it with the CRA, your contributions can be deducted from your taxable income so you pay less tax! But don't be confused: RRSP contributions will eventually be taxed when you withdraw it from the account. But when you retire, you'll probably be in a lower tax bracket than today, so over time you're saving so much money!
How am I saving so much money though?
Think about a $5,000 RRSP contribution when you're paying 25% in taxes because of your income.
If you put it in a normal savings or investment account, at tax time, our team will have to calculate the tax you owe, and if we simplify this, you'd owe, say, 25% of that $5,000, aka $1,250 is for the tax man. So when you invest, $3,750 is left to buy all your favourite companies.
But when you contribute to your RRSP, we can deduct this $5,000 from your income that year or in future years so that you pay less taxes! How? You'll actually reduce your tax bill by $1,250 and have the full $5,000 sitting in your RRSP investment account so you can buy more of your favourite companies!
Imagine a business with shares costing $10. If you didn't contribute, you could buy just 375 shares. But if you did contribute to your RRSP account, you could buy 500 shares! That will, in the long term, help you grow your wealth by using more of your cash today rather than having it taxed!
So I should always contribute to my RRSP then?
Well, no. That's where we come in with the consulting and advice. Sometimes investing in a TFSA is a more efficient account to invest with. But it all depends on your financial situation, so talk with your accountant and they would be able to help you tax plan to efficiently save on taxes and grow your wealth.
Ok, so how much should I contribute this year then?
Gotta be careful here: contribute too much, and you could go over your limit and get hit with CRA penalties!
But here are the rules:
Maximum of 18% of last year's earned income (employment income, for example) is allowed to be contributed for the following year. The maximum for 2017 was $26,010. Any unused amounts can be carried forward.
So if you make $50,000 last year, max you could put in is $9,000. $200,000 income? Max would be $26,010.
Your accountants at ADF will let you know how much you can contribute to your RRSP each year during tax time so don't worry, you'll know what your limit is each year with us!
In summary, the RRSP is a great tool to use to save on your taxes while investing for your future. Talk to your bank, financial advisor or our team at ADF if you're looking to contribute in these last two weeks.
March 1st, 2018 is your last day so don't wait!