Compute Your RRSP Advantages Now

Did you know that only 23% of Canadians contribute to their RRSPs, and their median contribution is only $3000, according to the most recent stats for the 2014 year? That’s a shame for a number of reasons.

One is that the RRSP deduction reduces net income—that line on the tax return that determines whether and to what extent you can take advantage of lucrative refundable and non-refundable tax credits. Here are some tips to save more:

Check Notice of Assessment.  Planning to contribute to an RRSP for each family member who has contribution room makes a lot of sense. But how much can you contribute? Check last year’s Notice of Assessment for this figure or ask your DFA-Tax Services Specialist or MFA-Retirement and Estate Services Specialist if you are unsure.

Transfer funds from other accounts. If cash is scarce at this time of year, consider moving assets that your clients have in a non-registered account into a RRSP. But remember that superficial loss rules could apply, as well as capital gains reporting before the money is dropped into the tax-deferred RRSP.

Reduce Marginal Tax Brackets and Clawbacks. Plan your RRSP contribution to keep any taxable income under clawback zones for OAS or for refundable credits like the Canada Child Benefit. Also, contributing to the RRSP can help you stay out of the next marginal tax bracket.

Use the RRSP Spousal Plan. RRSPs are also important planning tools for couples wanting to split retirement income under a spousal plan, especially if they want to do so before age 65. Withdrawing accumulations in the hands of the lower earner first can make a lot of sense. However, the RRSP spousal plan must be set up first. How much should go into your own plan? How much into the spousal plan? Check with your advisors now.

Create TFSA Cash. Remember contributing to your RRSP could increase your tax refund enough to at least partially fund your TFSA—a great opportunity for tax-free retirement planning. Last year the average refund was well over $1700; planning to increase your refund and then leverage it into a TFSA makes so much good tax sense.

Visit your DFA-Tax Services Specialist or MFA-Retirement and Estate Services Specialist before year-end to compute your tax advantages.

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