Is It Time To Contribute To An RRSP?
With the end of the year, our thoughts turn to resolutions. If you do not consistently contribute to an RRSP or haven’t previously contributed, it may be the time for a new year’s resolution!
There are a number of benefits to RRSP contributions. Firstly, it can be an essential part of retirement planning. Secondly, you may be able to net tax dollars over the long term. And finally, the power of compounding can significantly increase your savings.
Last year, only 46% of Canadians indicated they were planning to make an RRSP contribution. Work with your tax professional and/or financial advisor to determine if an RRSP should be an essential part of your retirement planning (if your income level is in the second tax bracket or above, it is likely beneficial).
At a certain level of income, there is another benefit that can net you tax dollars. When many of us retire, actuaries project that we will likely be in the lowest, or at the very least, a lower tax bracket then we are today. So, if we are in a higher tax bracket today, then we stand to save money. Today, we will receive a tax refund based on our tax bracket and when we retire and withdraw the RRSP funds (or RIF), we will most likely be taxed at a lower tax bracket.
Ideally, monthly (or more frequent) contributions work best. If the contribution automatically comes off your paycheque or is withdrawn from your bank account, you likely won’t miss the money. Then, your investment will enjoy the benefit of compounding, earning interest on the increased savings every month.
Solidify your future, it may be time to start contributing to an RRSP.