The RRSP deadline for your 2022 contribution (March 1) isn’t very far away now. Some of you look forward to this - every year. And some of you will view this deadline with a mixture of fear, dread and disinterest. If you are looking forward to it, you are almost certainly also putting your money into your RRSP automatically, so this might now affect you too much. But if you aren’t so sure, then here is another reminder that it's that time of year again.
What do you need to know before you get started?
This is the time of year that your RRSP contributions can be deducted from your taxable income tax for the previous tax year. Any contributions you make to your RRSP are directly deducted from your taxable income. This is why people like to put money into their plans during these first two months of the year - because they can see the tax benefits right away.
People who contribute money every month receive all these benefits. They've just decided that making it a regular part of their financial schedule makes things easier overall. It also offers them the chance to benefit from accumulation throughout the year.
But sometimes, your income isn't consistent throughout the year, and you need to think through your cash flow a little more carefully. You work on commission or have your own business with seasonal cash flow.
Either way, the most important thing is that you make your contributions each year. And if you do it now, you can see the tax benefits right away. Otherwise.. there's always next year.
There are limits, you know!
Your individual contribution limit is set by the government of Canada to 18% of your earned income for the year. For 2023, that limit is $30,780. That works out to a taxable income of $171,000. Last year's limit $29,210 and is adjusted by the Canada Revenue Agency every year.
Any contributions left over from previous years are available as well. So if you haven't used your limits in previous years, then you can use them now.
You are even permitted to make overcontributions - up to $2000, without penalty. After that, you will be charged 1% per month for as long as the money stays in your RRSP account. And that's not something I would recommend.
Just do it
We all have to go shopping for bread, eggs, milk, and all the rest. And we can all see that inflation is still a big problem. And there have been stories in the news going on for months about a recession in 2023.
But it’s still important that you put whatever money you can into your RRSP account.
COVID the world three years ago, and it’s not really done yet. So much of what we are going through right now is a carryover from the economic impact of closed businesses and closed borders all over the world. And that’s on top of the horrific human toll this health crisis has inflicted on all of us.
And then Putin decided to attack Ukraine a year ago. That war has had a major impact on world food supplies, as Ukraine was a major supplier of many important food stuffs. On top of that, Putin threatened to cut off vital energy supplies to Europe, creating more financial turmoil in the European Union and around the world.
But in 2023, the world is slowly shaking off COVID. And Putin’s economic and military efforts have obviously fallen short of his expectations. Ukraine is at least holding its own on the battlefield, and Europe was able to get through the winter with alternative sources of energy - renewable and non-renewable.
It’ll always be something
One thing to keep in mind when you are putting money away for the future is that there are always things going on that are going to affect our current perception of the world. But those events will pass, and new conditions will show up to take their place.
There is actually a term for that- dollar-cost averaging. Time has shown that this is one of the best ways of investing and is also one of the easiest. Investopedia tells us that:
So, if you aren’t already putting away money into your RRSP start doing it today.
Don't neglect your RRSP. Please
So, if you aren’t already putting money into your RRSP start doing it today.
Make use of your RRSP contributions - don't let them get away. It is one of the most effective saving tools available to Canadians.
After you've decided to do that, then we can work together to decide on how to invest it. Only a proper conversation with a professional financial advisor will get you the investment outcome that will fit your needs. Or at least that's what I think.
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