The Registered Retirement Savings Plan (RRSP) contribution deadline for claiming the deduction on your 2016 tax return is March 1, 2017.
For many people, RRSPs are a very important tool to save for their retirement. Everyone that does not have a generous pension plan offered by their employer needs to save on their own and RRSPs are one of the best ways. But not for everyone; it’s not the only option.
RRSPs are best for those with higher incomes ($45,000 or more). If your individual income is under that amount, you may be in too low a tax bracket for RRSPs to be ideal for you.
Unless you have children under age 18. That changes everything.
Remember: Good Tax Advice can be your Best Investment!
RRSPs and Children
I wrote in detail about RRSPs and those with children under 18 in my last article in January 2017 (go to annimarkmann.ca to read the archived article).
The Canada Child Benefit was introduced in July 2016 (replaced the Child Tax Benefit and Universal Child Care Benefit). And the amount you receive is based on family income. So if your family income is over $30,000, buying RRSPs will lower your family income and increase your Canada Child Benefit, so there is even more incentive for parents with children under 18 to buy RRSPs.
Need an example? Let’s say your combined family income is in the $45,000 to $65,000 range. If you buy $1,000 RRSP, you get your normal tax savings ($280 or more) AND you also increase your Canada Child Benefit by $70 to $230 for the year. That’s a combined savings of $350 to $510 on $1000!
What family situation would save the most? Family income of $45 to 65,000 and one spouse earns more than $45,000, and you have four or more children; you could be saving 56%! Maybe time to consider an RRSP loan.
If you want to find out about your own situation, contact our office and we can do some “what ifs” for you. But don’t wait until March 1 to call!
Employer sponsored RRSPs
If your employer matches your RRSP contributions through a payroll plan, then regardless of your income, you want to contribute to this type of plan (it’s free money!). Enroll as soon as possible and for the maximum amount that your employer will match.
When you file your taxes, remember to claim all of your contributions. I do meet some new clients that do not remember to include the contributions made in January and February each year. This is normally a RRSP contributed through payroll and the tax slips come late (mid to end of March), and often after you have filed your taxes. So either wait to file your taxes until you get all your receipts, or file early and then get an adjustment made to your taxes for the additional RRSP contribution receipts and more tax refund!
Should you consider an RRSP loan? They can be a good idea if you do not have the money to buy the RRSP. Make sure you can handle the monthly payment and it should be repaid within 12 months.
And use your income tax refund to pay it down to reduce the number of payments. Then you can use that same cash flow to set up a monthly pre-authorized payment so you can get a head start on the 2017 RRSP.
Don’t buy RRSPs
So who shouldn’t buy RRSPs? Anyone without children under age 18 and has individual income under $45,000 and no employer plan that matches contributions. You are in a low tax bracket and the tax savings are not as great (26 to 28%). You should use Tax Free Savings Account (TFSA) instead to save for retirement. You will benefit when you retire since you may be in a low tax bracket (and may qualify for other government pension benefits) and when you withdraw from the TFSA, you pay no taxes.
If you have children and your family income is under $30,000, don’t buy RRSPs. The Canada Child Benefit will not increase and you are in a low tax bracket, so there is no benefit to buying RRSPs. Use TFSA instead.
Maybe buy RRSPs
If family income is $30,000 to 45,000, the answer is maybe. Get an estimate of your 2016 taxes before you buy the RRSP, to see what your tax savings are and what affect it has on your Canada Child Benefit. The more children you have, the better the increase to the Canada Child Benefit.
A couple of reminders for the month of February. Service Canada is in Ste Anne every third Thursday of the month, including Thursday February 16; located at the Manitoba Bilingual Service Centre, next to our office.
And Canada Revenue Agency (CRA) opens Monday February 20 so we can start electronically filing tax returns then. If you have only Canada Pension Plan and Old Age Security pensions, we can get the tax slips direct from CRA (with your authorization), so you don’t have to wait for the tax slips to arrive in the mail to get your taxes done.
Looking forward to helping everyone maximize their refunds and minimizing their amounts owing. Most tax returns are due April 30. Self-employed and their spouses have until June 15.
We rescue unclaimed tax credits!
Anni Markmann is a Personal Income Tax Professional and Certified Financial Planner; living, working, and volunteering in our community. Contact her at 204.422.6631 or 36 Dawson Road in Ste Anne (near Co-op) or Info@SteAnneTaxService.ca