Today is the absolute, no-joke last day you can contribute to your RRSPs if you want to take advantage of the tax benefits they offer for the 2011 tax year. And while ideally, you will have been saving and scrimping a little off each paycheque throughout all of last year like a good little investor, the chances are you haven’t. This at least, according to two surveys done by two of Canada’s biggest banks. Those results say that most of us will be rushing out today to make a lump sum payment, and it’s not because we’re procrastinators. Many of us think this is actually a great tactic to employee when investing into RRSPs. So today, on no-joke deadline day, we take a break from Toronto mortgages and HELOCs to look at just why we think it is.
Both TD Bank and CIBC published their own surveys, asking people when and how they contributed to RRSPs – in a lump sum, or in small increments throughout the year. The TD survey came back with 58% saying that they wait until deadline day to make their investments; while the CIBC came back with 52% saying that they push it as far as they can. But what’s even more interesting is that the TD survey showed that 19% actually called this an “investment strategy” and 47% said that they have always only made lump sum payments.
But, regardless of what we think of the way in which we contribute, experts generally say that this is not the best way to invest in RRSPs, or anything else for that matter. Kurt Rosentreter, a certified financial planner and chartered accountant with Manulife Securities Inc. in Toronto says that one of the worst things about paying with a lump sum contribution is finding that money. This often leads people to take out loans that carry high interest or aren’t tax-deductible; or it needs to come from savings, depleting emergency funds and savings accounts.
Mr. Rosentreter also points to the fact that RRSPs are in fact investments, and that like with any investment portfolio, it needs to be looked at more than once a year. He says, “If you are in the habit of having an investment plan where it is really a once-a-year sit down and nothing else, I would say that’s insufficient. Particularly if you match it up with a high-cost product solution; such as paying Cadillac prices for Volkswagen service.”
All of that being said, if you haven’t yet made your RRSP contribution for the year, today is the day to get it done – even if you need to make a large lump sum contribution to do it. Because the very worst strategy is to have none at all; with no contribution of any kind there are no benefits. And that’s no joke.
