Avoid These Top 5 RRSP Mistakes
Are you contributing to your Registered Retirement Savings Plan (RRSP) for the tax deduction? This smart tax tactic is just one of many benefits. However, avoid these 5 mistakes to keep your RRSP strategy on track.
Missing the deadline
You have until March 1st to make your contribution and reap that tax deduction for your 2020 return. Canada Revenue Agency (CRA) offers a 60- day deadline extension, but no longer. So, get your contribution in on time.
Confining it to cash
Get your plan working harder. You can hold many types of investments in your RRSP, including stocks, guaranteed investment certificates, mutual funds, and bonds. All growing tax deferred.
So, hit that important contribution deadline, then sit down with your Financial Advisor to develop a winning plan of solidly performing investments to grow your wealth.
Tapping into your fund
Your RRSP is sitting there, happily compounding growth. You face too many bills or dream about a big-ticket item you want. But don’t treat this account as your savings plan.
Withdrawing money means short-circuiting its future growth; and you can’t replace that lost contribution room. You also face a double tax hit. First, a withholding tax upon withdrawal. Then, your self loan is added into your taxable income.
Saving too much
You can put 18% of pre-tax earned income in your RRSP, up to a limit of $27,230 for 2020. You can carry forward room from previous years. (Your notice of assessment from the CRA will tell you how much). That’s it.
CRA allows a $2,000 buffer against possible errors, such as not factoring in a workplace pension plan or deferred profit-sharing plan. After that, you face a penalty of 1% per month until you correct your mistake. Take a look at box 52 on your T4 slip to see if this applies to you.
Spending your tax refund
You will leverage powerful growth, through the magic of compounding, by reinvesting your refund. Spending that cash will starve your fund of this potential growth; you will miss a great opportunity to grow your wealth.
Keep your RRSP strategy on track. Ask your Financial Advisor to help you plan a high-growth, low-tax strategy for your money.