We are entering the busiest season of the year for accountants as we move deeper into 2022. RRSP deadline is approaching fast and many people ask how much to contribute and if RRSPs are the best option for them.
As usual, find your answers in the video below and if you prefer reading, the transcription is right under.
Good afternoon everyone. It’s Irfanali with RMI Professional Corporation. I hope everyone’s had a fantastic week. I know we’re in the middle of January so it’s an accountant’s favorite time of year. We all stay very busy at this point in time.
So today, as everybody’s gearing up for tax season I wanted to touch on a topic that a few clients have reached out to me over the last week and asked about. And that is RRSP contributions. So the RRSP deadline’s going to be coming up end of February of course like every year.
And the one question I always get is how much should I contribute? Should I contribute at all? And I want to touch on that a little bit today.
How to use RRSPs properly?
So to start with, first and foremost RRSPs are a very key tool but they have to be
I hear a lot of people just say put money in RRSPs, put money in RRSPs, and it’s not necessarily the right decision for everyone.
So the strategy behind using RRSPs is so you can grow your money tax-free over time. But more importantly, you can reduce your income from a high-income tax bracket today to a low one in the future once you retire.
And so If you are actually in a low-income tax bracket today you have to really decide. Does it make sense for you to use RRSP and do RRSP contributions?
does it make sense to use RRSPs?
We’ve touched on holding companies in the past. If you have a holding company and you save a lot of your money inside that company, again you have to really decide – do RRSP contributions make sense?
Or can you look at something else like a TFSA?
Do not overcontribute
Now for those where it does make sense the things to really start to consider is most importantly how much of a contribution room do you have?
If you overcontribute there are some big penalties from CRA. So you want to make sure you’re confirming that amount and making sure you’re not overcontributing.
Think about your taxes
Another next big factor for you to think about when doing RRSP contributions is how much tax are you actually going to owe.
So if you have other income like rental income or investment income RRSP’s can be a good strategy to be able to reduce and make sure you’re not paying any tax on that because of an RRSP contribution.
So, there are a few things to always look at and as I always say, make sure you’re looking at the big picture. Make sure you look at your overall financial situation before you actually make a decision.