RRSP season basic training

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This article was published 15/02/2025 (261 days ago), so information in it may no longer be current.

Contribute, invest, deduct and repeat should best be drilled into the heads of anyone serious about retirement saving.

Yet, occasionally, tactical pivots are required in the battle to finance the golden years, especially regarding the lead war horse — the registered retirement savings plan.

One of those potential pivots comes around annually: the RRSP deadline.

This year, March 3 is the last day to make a contribution for the 2024 tax year. If you’ve got it, you can contribute up to 18 per cent of the previous year’s income to a maximum of $31,560.

It’s likely you may have even more room to contribute. Most Canadians do not contribute the maximum annually and unused contributions accumulate over time.

Statistics Canada data show about 22 per cent of tax filers contribute annually —averaging about $3,900 in total contributions.

The latest data on unused contribution room from the government show, in 2016, Canadians had more than $962 billion in room — a number that has likely grown since.

More recently, a fall survey by the Canada Pension Plan Investment Board found about two-thirds of respondents feared not having enough money to retire comfortably, with many estimating they require at least $900,000.

Whether that sum is required or not, this RRSP season (late February) is a good time for basic training on last-minute contributions that can help Canadians complete their mission: comfortable retirement.

Who should consider a last-minute RRSP contribution?

If you have earning income and are under age 71, you should consider contributing, but some should more than others.

“Anybody that hasn’t made an RRSP contribution in 2024 should definitely be thinking about it,” says Anthony Maros, senior private banker with BMO Private Wealth in Winnipeg.

Self-employed individuals and other workers, earning a wage that is taxed but also have side hustles with untaxed income, should be thinking about a contribution.

“You might have a regular paycheque with all the deductions but then take on contracts for an extra $15,000,” says MaryAnn Kokan-Nyhof, a certified financial planner with IG Wealth Management in Winnipeg.

Making an RRSP contribution for the 2024 tax season before March 3 can lead to a sizable enough tax deduction to eliminate most if not all of those taxes owing that $15,000.

“Nobody wants to come up with money at the last minute to pay a tax bill.” She further advises people earning untaxed income should set a significant portion of that money aside for the year.

That way, it can be used for an RRSP contribution at this time to deal with the tax liability.

Even young families with children and lower incomes, collecting the Canada Child Benefit, may want to consider a RRSP contribution. They may not reap much for a tax refund. But because the deduction will reduce net income, it could increase the amount of benefit they receive, which is determined by family net income.

That said, if they’re renting, a First Home Savings Account (FHSA) may be a better choice because those contributions are also tax deductible. The feds have an online calculator to help figure out what a family will receive.

What’s the right amount to contribute?

The easy answer is as much as you can afford, says Luka Marjanovic, managing director of CIBC Investor’s Edge (DIY investing platform) in Toronto.

“The right amount is what you can spare after all other important financial considerations.”

It’s also important to understand how much contribution room you have. You can get that number from your Canada Revenue Agency online account, or your 2024 notice of assessment.

One strategy is contributing enough to bring your income below the highest bracket at which you’re paying tax — the marginal rate. For example, if you have $104,000 in taxable income for 2024, your marginal rate is 37.9 per cent in Manitoba (federal and provincial combined). The next lowest bracket is 33.25 per cent at $100,000 and under. By contributing $4,000 to the RRSP, you’d avoid paying 37.9 per cent on that $4,000, resulting in a refund of $1,516.

Of course, the best way to determine how much to contribute is to have a financial plan that can serve as a guide.

Ideally, this will help avoid making last-minute contributions because, with a plan, you are able to determine the appropriate amount of regular, recurring contributions to maximize tax efficiency and the chance of reaching your retirement goal.

“The easiest and best way to make RRSP contributions is to have them recur regularly,” Maros says, further noting one challenge with making a last-minute lump sum contribution is many people may intend to do it but get too busy and never do.

How to invest the contributions?

First, contribute and then worry about where to invest. One reason is the tax deduction will likely be as good as any annual return you will get from an investment.

Just don’t let the cash linger in your RRSP too long.

“One of the biggest mistakes with a February contribution is you make it and don’t invest it afterward, and the money sits there for a few years,” Maros says.

“Meanwhile, you could be investing in lots of different things.”

Choices range from stocks, bonds, GICs (guaranteed investment certificates), mutual funds and ETFs (exchange-traded funds). The ample choices, and their risks and rewards are reasons to see an adviser.

Do-it-yourself investors are often best off keeping their strategy cheap, simple and diversified. That’s especially true for those getting started, says Marjanovic.

“The smaller amount you’re starting with, the more it makes sense to invest in a fund that provides low-cost diversification.”

Balanced mutual funds and ETFs fit the bill. Then over time, as your capital and market knowledge grow, so too can your investment choices.

Boot camp dismissed.

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com