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The 411 on RRSPs


Q. Why should Canadians care about RRSPs?
A. Hands-down, the RRSP tool is the most powerful retirement savings vehicle for most Canadian households earning an income over $55,000. That’s simply because when you add a single dollar into your RRSP, it reduces your tax bill by approximately 30 cents. That’s essentially a 30 per cent return on your RRSP investment. That savings typically shows up in the form of a refund after you’ve filed your taxes.
Q. When should I make a contribution?
A. You can contribute throughout the year, on payday. Or, you can top-up your contributions before March 1st every year so that it counts for the previous calendar year.
Q. How many Canadians are contributing to RRSPs?
A. According to Statistics Canada, there are less than 30 per cent of Canadians participating in RRSPs. Since 1990, over $700 billion of contribution room has been left on the table. That means many households are paying more on their tax bill than necessary.
Q. How do you know what your available contribution room is for your RRSP?
A. There are two easy ways to find out. First, you can go online and sign up for CRA’s My Account. Your available room will be displayed along with other pertinent tax forms – this is also good news if you’ve lost your tax forms. Or, you can dig up your most recent Notice of Assessment and your available room will be displayed on the third page of that document.
Q. What happens if you skip a year of RRSP contributions?
A. What’s great about RRSPs is that your contribution room carries forward indefinitely.
Q. What should you do if you can’t afford to maximize the contribution room?
A. Have a look within your budget to see how you could trade an unnecessary expense for an RRSP contribution. For example, if you could reduce your fitness expenses by half, you could take the savings and pop it into your RRSP. Second, most employers offer some kind of RRSP savings program. Sign-up for that because it typically has an employer-matching component. That means free money!

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