– by Todd Hummel, BMO Nesbitt Burns –
A Registered Retirement Savings Plan (RRSP) is one of the most efficient ways to save for your retirement. As a reminder, the deadline for making your 2013 RRSP contribution is
March 3rd, 2014.
For 2013, your RRSP contribution limit is based on any unused contribution room carried forward from 2012, plus your 2013 contribution amount (the lesser of $23,820 or 18% of your 2012 earned income). If you’re a member of a Deferred Profit Sharing Plan (DPSP) or Registered Pension Plan (RPP), you must also subtract your 2012 Pension Adjustment. You can also refer to your 2012 Notice of Assessment from the Canada Revenue Agency (CRA) which shows the calculation of your RRSP contribution limit for 2013.
If you’ve already made your 2013 RRSP contribution, consider making your 2014 RRSP contribution. The maximum RRSP contribution limit for 2014 is $24,270.
Grow Your Savings With a TFSA
A TFSA is a multi-purpose, tax-efficient savings account that complements your existing retirement savings plan. Your TFSA contributions grow tax-free and can also be withdrawn on a tax-free basis at any time and used for any purpose. If you have maximized contributions to your TFSA and have excess funds to invest, you can give money to your spouse, partner or adult children to make a contribution to their own TFSA. This strategy allows you to help family members build assets, without having to worry about the income being attributed back to you.
TFSA vs. RRSP
The timing of your RRSP contributions is important. If you’re younger or are just starting out in your career, consider delaying your RRSP contributions until you’re in a higher tax bracket. Instead, contribute to a TFSA for tax-free growth. Later, when you are subject to a higher tax bracket, consider withdrawing funds from your TFSA to make your RRSP contribution. This way, you’re able to capitalize on the tax deduction and can use your income tax refund to replenish your TFSA. For Canadians in the top marginal tax bracket, it’s important to maximize your RRSP contributions. If you do not have enough funds to make both an RRSP and TFSA contribution, consider maximizing your RRSP contribution each year to take advantage of the income tax savings, and then use your tax refund to make a TFSA contribution for additional tax-free growth
Opinions are those of the author and may not reflect those of BMO Nesbitt Burns Inc. (“BMO NBI”). The information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. BMO Nesbitt Burns Inc. is a wholly-owned subsidiary of Bank of Montreal. Member-Canadian Investor Protection Fund.”
