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RRSPs: 5 considerations before you invest

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Whether you’ve changed jobs, been redeployed, or been thinking about retirement, tax season is a good time to check in with your SISIP Financial Advisor. We can help you use a Registered Retirement Savings Plan (RRSP) to build financial security in a tax-smart way.

But before you jump into an RRSP, here are five things to consider:

1) Is an RRSP the best option for you?

An RRSP can be a great way to establish a solid income when you’re retired and no longer working. The money you invest can grow without paying tax on the profits until you withdraw it in the future. Plus, anything you deposit is deducted from your taxable income, which means you’ll likely receive a tax refund now. For these two reasons alone, an RRSP is a good option for most people. 

If you’re just starting out in your career, an RRSP is also a great way to get into the habit of saving each month. Plus, the sooner you start, the less you will need to save to meet your retirement goals. That’s the power of compound interest.

And one more thing: you can use your RRSP strategically to meet other financial goals too. Talk to your SISIP Financial Advisor about how you can potentially use your RRSP for a down payment on a home or to cover your education expenses.

2) Can I have an RRSP and a pension too?

Yes! Even if you already pay into a work pension, you can still benefit from investing in an RRSP. An RRSP will help you to reduce the amount of income tax you pay today and top up your income when you retire.

The amount you can contribute will be affected by your pension adjustment, which is shown on your T4 slip from work. Keep in mind, you may also have unused RRSP contribution room that you can carry forward from previous years, which will increase your total contribution limit.

3) Should I invest in an RRSP even if my income was low this year?

The general rule with RRSPs is, the higher your income, the more money you’ll get back on your income tax return. For this reason, if you’ve had a year of lower-than-usual income, you might want to hold off and use your contribution in a future year when your income is higher and you can save more tax.

Did you already contribute during 2023? No problem - you don’t have to claim the deduction on this year’s tax return. If you think you’ll make more money in 2024, hold on to your Schedule 7 and claim it next year. If you have questions about how to do this, a SISIP Financial Advisor can help you out.

4) Is a spousal RRSP a good idea if my spouse makes less money than me?

If there’s a significant difference in income between you and your spouse this year, it makes sense for the higher-earner to make the RRSP contributions in order to get the biggest income tax deduction. If you think that this income gap is likely to continue for the longer-term, you might consider making the contribution to a spousal RRSP.

Here’s why: When you retire, you want your household income to be split as evenly as possible between you and your partner. A couple that earns $40,000 each will pay a lot less income tax than one person earning $80,000. A spousal RRSP contribution allows the higher-earner get a tax break now, but also makes it possible for both spouses to share the income during retirement. 

Your SISIP Financial Advisor can help you determine whether to invest in an individual RRSP, a spousal RRSP, or both.

5) Can a TFSA be used for retirement savings?

Depending on your situation, you could think about using a Tax-free Savings Account (TFSA) in addition to your RRSP, or even instead of your RRSP. A TFSA isn’t tied to your salary or your employment status, so any Canadian adult can have one.

You don’t get a tax deduction on TFSA contributions, but you also don’t have to pay income tax when you eventually withdrawal from the account, which gives you a bit more flexibility around how and when to use the funds. 

Whether to have an RRSP, a TFSA, or both is definitely a worthwhile conversation. Your SISIP Financial Advisor can ask the right questions and run simulated scenarios to see which strategy is going to work best for you.

The RRSP contribution deadline for the 2023 tax year is February 29th, 2024, so now is the time to book an appointment with your SISIP Financial Advisor.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was written, designed and produced by SISIP Financial, for the benefit of SISIP Financial a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.