Monday, February 9, 2015

Five reasons why you don’t want to miss the RRSP contribution deadline

The annual RRSP contribution deadline for the 2014 tax year is fast approaching. If you’re still on the fence about making a contribution or topping up your contributions before the March 2, 2015 deadline, here are five good reasons why you might want to.
1)     You’ll need it. Canadians are living longer and retiring earlier, meaning most will need more money in their retirement savings than ever before.
2)     The tax deduction. Any contribution you make before March 2, 2015 earns you a tax deduction for the 2014 tax year. The actual amount you’ll receive depends on your tax bracket.
3)     Tax-deferred growth. Contributions to an RRSP — and the income generated from that investment — aren’t taxed until you begin to make withdrawals, usually in retirement and in a lower tax bracket.
4)     Freedom in your fifties. You won’t start receiving money from the Canada Pension Plan (CPP) until you turn 60. Old Age Security (OAS) doesn’t kick in until 65. If you want to retire early, an RRSP is one of the best ways to ensure you’ll still receive an income in your 50s.
5)     There’s no time like the present. Saving for retirement isn’t always easy, nor is it as enticing as putting your money toward a new car or a warm vacation. But the sooner you start to contribute, the more income you’ll have in retirement. You’ll thank yourself later.

Three RRSP mistakes to avoid

While making an RRSP contribution before the March 2, 2015 contribution deadline (for the 2014 tax year) is a great way to bolster your retirement savings, here are three costly RRSP missteps to steer clear of:
1)     Funding your contribution with a credit card. The pressure to make a contribution before the deadline may be immense, but using a cash advance from a credit card to come up with the money is always a bad idea. The high interest charged on most credit cards is all but guaranteed to exceed whatever investment income you might earn on your contribution.
2)     Making a contribution instead of paying down high-interest debt. Much like the first mistake, if you already have unpaid credit card debts on which you’re paying high interest, you’re better off using your contribution money to pay down that debt first. Once you’ve paid that off you can then turn your focus to your RRSP.
3)     Over-contributing. The flipside of trying to come up with the money to contribute is contributing more than you’re allowed. You’re allowed a lifetime over-contribution of $2,000. Beyond that, any over-contributions are subject to a tax of 1.0 per cent per month, so be careful. Your notice of assessment from the Canada Revenue Agency will show you how much unused contribution room you have.

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