How to Plan Your RRSP Contributions

It’s almost that time of year again.

Tax time!

For those of you who have read this blog for a while, you know tax time is actually my favourite time of year. The OCD in me loves the organization of all my receipts, the columns of HST calculations and the frugal side of me loves the refund.

A tax refund feels like free money. You spend all year making contributions without even knowing about it and come April, you get a cheque! Many people reading this may think, how is it possible to “not know” you’re committing to your RRSP’s? I swear, I’ve got this down to a science! Here are my tips on how to plan your RRSP contributions

  • Know The Marginal Tax Rate – The marginal tax rate is imperative to know so you know how much you need to contribute to get yourself in a lower tax bracket. Lower bracket = bigger tax refund. Below is a quick snapshot of the marginal tax rate. For example, if you make $95,000 – and want to get into the lower bracket, you need to contribute $6,000 to move yourself to a lower bracket. Know that you don’t necessarily need to just contribute to an RRSP to move yourself into a lower bracket, you can also use deductions. Which leads me to my next point.

Ontario Marginal Tax Bracket

  • Take Advantage Where You Can – There are so many options out there to help lower your tax rate. Various tax deductions, spousal splitting, RRSP matching at your company. Once you know where you’re trying to get to in terms of marginal tax rate you can use everything at your disposal to bring you down
  • Plan for Your RRSP throughout the Year – The above two points lead me to this, which is ensure you plan throughout the year. Again, once you know where you’re going in terms of marginal tax rate, keep an eye out for deductions throughout the year. Also, RRSP’s are helping you get to a full and satisfying retirement so check out this link to see if you’re planning correctly or speak to your financial advisor about planning.
  • Make Monthly Contributions – Once you know what your marginal tax rate is, set up a reasonable contribution monthly. This will allow you to contribute right off your pay cheque without too much thought. Once it’s gone, it’s done. If your company matches your contribution, even better! Free money!
  • Work with a Financial Advisor – I’m not an expert by any means which is why, I always rely on an advisor to help direct me on the best possible ways to maximize my refund and savings/planning goals. A Financial Advisor can be someone you work with semi-annually or quarterly to ensure you’re meeting all of your tax planning goals. If you’re looking for a tax advisor, Investors Group will help educate you about the solution that’s right for you.

Good luck!

Tiff

 

2 Comments on “How to Plan Your RRSP Contributions”

  1. Thanks. I always apply for Reduced Tax at Source when I know I’ll be contributing to an RSP on a monthly basis. The equivalent to the tax that will be refunded never comes off my paycheque – I so dislike the government holding onto my money only to refund it the next year.

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