by Dan Adair, Island Savings Brentwood Bay –
Every year, at the beginning of March, RRSP “season” wraps up. During this time, everyone scrambles to get their RRSP (Registered Retirement Savings Plan, in long form) contributions in before the deadline – many times to help come tax time – and then they don’t really think about it again until the following year. Here are a few questions to consider now:
Why is it important that RRSPs are considered year-round?
Through proper planning, you can take more advantage of the RRSP because you’ll have more time to invest in it instead of scrambling to contribute what you can at the deadline. Weekly or monthly automatic contributions can lessen the burden because you’ll be adding smaller amounts instead of a bulk sum. Through proper planning, you can ensure that you are getting the most benefit when it comes to tax planning.
Are there some common mistakes people make with their RRSP?
RRSP stands for Registered Retirement Savings “Plan,” not “Product,” so the biggest mistake I see people making is placing money in their RRSP and doing nothing with it. Leaving your savings in an account making very minimal interest isn’t to your advantage. Also, when a lump sum is made you lose out on the advantages of compound interest. If you contribute early and often, you will collect interest throughout the year.
What are some investment options that someone could consider with their RRSP?
Although your RRSP’s primary purpose is being used for the tax advantages, there are several investment options that come along with it as well. GICs, mutual funds, bonds are only a few of the investment options available. Many financial institutions will also offer managed solutions that provide diversification to a member’s RRSP. There are many factors to consider so it is wise to speak with your advisor.
If I have an established RRSP, can I make changes to it and begin to invest in those options, or would it require opening a new RRSP?
Yes, you absolutely can. Keep in mind that RRSP rules such as contribution room, interest penalties, deadlines etc., remain the same. I’d recommend connecting with your advisor to learn about the investment options available to you. Based on your life stage, risk tolerance and goals, your advisor can customize your RRSP so that it supports your retirement plan as opposed to being an inactive product that you scramble to contribute to every February.
Dan Adair is the Brentwood Bay branch manager at Island Savings, a division of First West Credit Union.