RRSPs: PROPER PLANNING FOR PROSPERITY IN RETIREMENT
With RRSP season in full swing, you’re likely being constantly reminded that March 1 is the deadline to contribute to your retirement savings so you can get a deduction on your 2016 income tax return.
Registered Retirement Savings Plans (RRSPs) allow investors to grow their savings in a tax-sheltered vehicle up until funds are withdrawn. By contributing each year, you reduce your annual taxable income by about the same amount, and receive a tax reduction as a result.
RRSPs are widely regarded as attractive investment vehicles, but are they right for your personal situation?
While the financial benefits of investing in your RRSP are clear, there are other avenues that should be explored as well. These may even be more appropriate for your personal plans and financial goals. For example, Tax-Free Savings Accounts (TFSAs) also help to grow tax-sheltered investments, with the added advantage of being able to withdraw funds at any time without tax consequences. Also, if you have children, Registered Education Savings Plans (RESPs) allow you to save for your children’s post-secondary education, while also offering generous government grants that help grow your savings.
“Unless you have a good understanding of the various plans and investment products available, an analysis of your situation with your representative is truly the best route to take when making these types of investment decisions,” said Camille Beaudoin, director of financial education at the Autorité des marchés financiers (AMF).
SAVE NOW, INVEST LATER
If, after careful consideration, you’ve decided that an RRSP is the ideal investment vehicle, there’s no need to make any hasty decisions by March 1. You can still get a tax deduction on your 2016 return by making a deposit into your RRSP savings account by the deadline, but postponing the choice of subsequent investments until a later date.
INVEST AT ANY TIME OF THE YEAR
Another way to avoid making rushed investment decisions during RRSP season is by having an investment plan for the year. As long as you’re aware of your maximum RRSP deduction, which appears on the Notice of Assessment sent to you by the Canada Revenue Agency each year, you can consider retirement savings options at any time. This may include setting up some kind of automatic savings program, which typically entails regular transfers from an account you hold at a financial institution into your RRSP account. For example, a planned annual investment of $2,600 could be made by transferring $100 every two weeks directly into your RRSP account.
WORK WITH YOUR REPRESENTATIVES
According to the AMF’s 2016 Index, which published the results of a survey outlining Quebecers’ financial behaviours, 44 per cent of investors polled check with their representatives when making decisions about their retirement savings.
“Don’t hesitate to ask about the various products offered on the market and their advantages, disadvantages and risks,” Beaudoin said. “Not all products have the same characteristics, and some may be better suited to you than others depending on your investor profile, risk tolerance and investment objectives. Also, having this touch point will help you maintain a healthy relationship with your representative, which will help you to work productively together over the long term.”
RRSP season is really a timely opportunity to conduct a complete analysis of your financial situation, while taking stock of your personal and financial goals, and how to achieve them.
For more information, visit lautorite.qc.ca.