No Time To Waste: TFSA, RRSP or Both?

It’s February – no time to waste. 

There are two very important investment opportunities to take advantage of now, but you’ll need to plan to put much of that February pay and your savings accounts to work for you now.  The smart money goal:  be sure to make your RRSP and TFSA contributions.

MAXIMIZE RRSP DEDUCTIONS – CONTRIBUTE BY MARCH 2.   Dig out your 2013 Notice of Assessment to check out your personal RRSP Contribution Room before the contribution deadline of March 2, 2015.  Did you maximize your RRSP Room?  If not, you could fatten up your tax refund. The maximum contribution room you could have earned for 2014 is 18% of earned income up to $24,270. But your room may be higher if you haven’t maximized your contributions in the past. 
But, be sure you don’t over-contribute. Excess contributions – the amounts over your RRSP room plus $2000 - are subject to a 1% per month penalty tax, which must be paid by March 31.  Form T1-OVP is a bit of a nightmare, so see a tax pro for help.

TFSA SAVINGS ROOM UP TO $36,500. Despite the fact that there were no increases to additional contribution room for 2015, you can and should contribute an additional $5,500 to your TFSA as soon as possible this year. TFSA contribution room became available to Canadian adult residents on January 1, 2009, providing a total of $36,500 of available room since 2009 (4 years at $5,000 and 3 years at $5,500).

Contributions to a TFSA are not deductible, however income earned within a TFSA and withdrawals made from it are not subject to tax. TFSA activity does not affect eligibility for federal income tested benefits and tax credits, such as Old Age Security, the Guaranteed Income Supplement, the Canada Child Tax Benefit, the Working Income Tax Benefit and the Goods and Services Tax Credit.

TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. You do not have to set up a TFSA or file a tax return to earn contribution room.

It’s Your Money. Your Life. You have every opportunity to set up your future to maximize your choices and live a peaceful financial life.  Even if you can’t contribute the maximum to your RRSP or TFSA, try to increase your tax refund with an RRSP contribution before March 2. Then put that tax refund into a TFSA.  Check with your designated tax specialists and financial professionals to make sure you are eligible.

Evelyn Jacks is President of Knowledge Bureau, a national educational institute focused on continuing professional development courses for advisors. See www.knowledgebureau.com for an invitation to the Knowledge Bureau Report, or register for professional online courses to shore up your knowledge on tax, retirement, business, succession and bookkeeping services.