Camille Jones, CLU

By Camille Jones

Year after year, many Canadians leave a key financial opportunity on the table by not contributing the maximum allowable amount into their Registered Retirement Savings Plan (RRSP). If your annual income tax assessment includes a notice from the Canada Revenue Agency that details how much unused contribution room you have left in your RRSP from previous years, the time to act is now.

For example, contributing $10,000 into an RRSP that offers a 7% return, compounded annually could turn into $76,123 over the span of just 30 years. Plus, contributing the full amount creates a larger income tax deduction that could result in a significant tax refund.* Although it may seem difficult to find the money to contribute into your RRSP every year, we can show you a number of strategies to consider that can help accelerate your plan using assets you have readily available and key tax planning benefits.

Know Your Limits
It’s important to know how much contribution room you have, prior to sitting down with us to discuss your RRSP strategy. Each year, the Canada Revenue Agency identifies your unused contribution room for the upcoming tax year on your Notice of Assessment. If, however, you are unable to locate your Notice of Assessment, a quick call to the Canada Revenue Agency at 1-800-959-8281 or a visit to www.cra.gc.ca can provide the information you need.

Invest Smart
It may be to your benefit to move money you currently have in savings accounts or other investments into your RRSP sooner, rather than later. Moving these dollars into your RRSP will not only result in a reduction of your annual tax bill – but it also allows you to maximize growth inside your RRSP, without generating immediate taxable income. It’s important to remember that interest earned on savings accounts and both realized and unrealized capital gains on non-registered investments will be taxed prior to when they are moved into your RRSP. You can also withdraw from a Tax-Free Savings Account (TFSA) to make your RRSP contribution. Any withdrawals from your TFSA are added to the available TFSA contribution room the following year.

Invest Regularly
Consider working your RRSP contribution into your budget by using a monthly investment plan that automatically deducts a specified amount from your savings or chequing account on a regular basis and invests it into funds held inside your RRSP. Monthly investment plans can be customized to work best for you.

Consider the Benefits of Borrowing
In many cases, borrowing to take full advantage of RRSP contribution room makes sense. Maximizing your RRSP contribution now offers immediate tax savings this year and tax-deferred potential growth for many years to come. Using this strategy can make it beneficial to borrow for a short period to maximize your plan.**

Your Financial Consultant can help you determine whether a loan fits into your financial plan by looking at the following factors:

Your age – The impact of compound growth increases depending on the
time that money is invested. While borrowing to invest may have more impact at a younger age, your consultant can prepare an illustration that shows it’s never too late to save for your retirement.

Your Ability to Repay – Your consultant should never recommend that you borrow more than you could possibly repay because it could make it difficult to save for next year’s RRSP contribution.

In addition, contributing to an RRSP generates an income tax deduction that may result in a significant tax refund that could be used to help pay down a portion of the loan almost immediately.

Your Ability to Borrow – An RRSP Loan or Line of Credit will increase
your Debt Service Ratio (the percentage of your monthly income
that goes to pay off debts) and lenders rely on this ratio to determine
your loan eligibility.

To discover which approach is best for you, contact Camille Jones, C.L.U at 647  856-8048 or by email at [email protected].

*Pre-tax RRSP contribution assumptions –
$10,000 investment purchased on January 1,
2010 at a gross rate of return of 7% over a 30
year period. The rate of return is used only to
illustrate the effects of the compound growth rate
and is not intended to reflect future values or
returns on investment.
**RRSP Loan assumptions – Client takes out a
1 year RRSP loan of $10,000 at a fixed rate of
6% on January 1, 2010 and makes a $860.66
($810.66 principal and $50.00 in interest) payment
on January 31, 2010. Client has a marginal
tax rate of 40% and receives a tax refund of
$4,000, which is used to pay down the loan on
February 1, 2010 (remaining balance on
February 1, 2010 is $10,000-[$810.66+$4,000] =
5189.34), which is paid monthly ($486.03) over
the remaining 11 months.

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