Well, it’s RRSP season again. And since there are only twelve days left to contribute to your RRSPs, we thought that we’d take a break from talking about mortgages and home equity loans in Canada so that we could cover the basics of RRSPs – and what you need to know if you’re going to invest in them.
The first question that everyone has every year is – what is the maximum that I can contribute to my RRSPs to get the full reduction benefit? You generally want to contribute as much as you’re allowed to, but you also don’t want to go over that amount. First, look at your Notice of Assessment you received after filing your taxes last year; the CRA includes on this Notice how much you can contribute to an RRSP. That being said, there are maximum amounts and for 2012, the most you can contribute is $22,970.
The next question that most people have is – which RRSP account can I contribute to and still receive tax deductions for? Yes, what you’ve heard is true: you don’t need to contribute to your own RRSP to benefit from tax deductions! While that is always an option, you can also always contribute to your spouse’s RRSP or your common-law spouse’s RRSP. You’ll still get the benefits, and both of you will have money to retire!
And lastly – what is the deadline for RRSP contributions? Well as we’ve said, there are only twelve days left to contribute and receive tax deductions; that makes this year’s deadline February 29. The RRSP deadline is always 60 days after the end of the following year, which usually marks the deadline date as March 1. However, due to the leap year this year, we’ve got until the end of February.
Now for the big question – should I contribute to my RRSPs? Well, that depends. If you can afford it, now is a great time to sock away some RRSP money and get all those tax benefits come April. However, if you’re having trouble paying your Ottawa mortgage and your regular bills, or you’re deeply in debt and desperately trying to climb out of it (like the good Canadian you are) then now might not be the time to invest in retirement funds. Instead, that money might be better used for your longer-term goals than just saving on your taxes. However, if you have extra cash, even if it’s not the maximum amount you’re allowed this year, talk to your financial adviser about setting up an RRSP account, or just contributing to yours this year. You’ll be happy you did!
