VANCOUVER, British Columbia, Jan. 31, 2020 (GLOBE NEWSWIRE) -- Time is running out, as March 2, 2020 is the last day you can contribute to your RRSP. Here are five tips from the Chartered Professional Accountants of British Columbia (CPABC) to help you maximize the benefits of your RRSP:
1. Gain some tax savings when you contribute to your RRSP
If you have an RRSP deduction limit (as shown on your 2018 Notice of Assessment), and you are a B.C. resident, you may be able to realize the following income tax savings from making an RRSP contribution:
| If your taxable income is | A $1,000 RRSP contribution would reduce your 2019 taxes by… |
| $12,069 - $47,630 | Up to $227 |
| $47,631 - $95,259 | ~$227 to $328 |
| $95,260 - $147,667 | ~$328 to $407 |
| $147,668 - $210,371 | ~$407 to $458 |
| $210,372+ | ~$458 to $498 |
2. Use your RRSP contribution as a tax deferral vehicle
Remember, an RRSP is a tax deferral vehicle — you will be taxed on the funds once you make a withdrawal from your RRSP. That said, would you rather pay $1 of income tax tomorrow or $1 of income tax today? Since you likely will be in a lower tax bracket when you retire, actual tax savings should result if you wait until retirement to withdraw from your RRSP.
3. Take advantage of a spousal RRSP
A spousal RRSP can help shift future income from a higher income spouse to a lower income spouse. This can provide some tax savings when the receiving spouse withdraws funds from his or her RRSP, RRIF, or annuity. Using a spousal RRSP might also reduce the clawback on Old Age Security payments from the higher income spouse and allow the lower income spouse to claim the pension income tax credit.
Spousal RRSPs provides immediate tax savings, since the higher-income spouse making the contribution gets the tax deduction while the lower-income spouse, rather than the contributor, is taxed on any withdrawals at a future date.
4. Can’t make the deadline? Make an early contribution for 2020
If you don’t have additional funds to make an additional RRSP contribution right now, consider making an early contribution for 2020 after February 29. In fact, it is better to contribute at the beginning of the year to start tax-free compounding of earnings within your RRSP. A tip to help you remember to save into your RRSP is to set up monthly contributions throughout the year. That way, you won’t have to worry about making a lump sum contribution at the end of the year.
Lastly, remember that any unused contributions can be carried forward indefinitely.
5. Consider ways to grow your RRSP
Don’t let your RRSP sit there. You can hold the majority of publicly traded investment in your RRSP, including: public stocks, term deposits, eligible mutual funds, GICs, and bonds. This is a good way to grow your money without tax implications – at least until you make a withdrawal. Remember, the interest you earn on your RRSP investments is not taxed as long as it stays within your RRSP.
Learn how to maximize your RRSP benefits with CPABC’s RRSP and Tax Tips at rrspandtaxtips.com. If you have more questions regarding your RRSP, consult a chartered professional accountant or a financial advisor.
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Please credit Chartered Professional Accountants of British Columbia (CPABC) for use of the content and include the following disclaimer: Tax rules relating to these RRSP tips are complex. This is not intended as tax advice, and you should not make tax decisions based solely on the information presented in these tips. You should seek the advice of a chartered professional accountant before implementing a tax plan or taking a tax filing position.
About CPA British Columbia
The Chartered Professional Accountants of British Columbia (CPABC) is the training, governing, and regulatory body for over 37,000 CPA members and 5,000 CPA candidates. CPABC carries out its primary mission to protect the public by enforcing the highest professional and ethical standards and contributing to the advancement of public policy.