The Registered Retirement Savings Plan (RRSP) contribution deadline for claiming the deduction on your 2017 income tax return is March 1, 2018.
For many people, RRSPs are a very important tool to save for their retirement. If you do not have a generous pension plan offered by your employer you need to save on your own and RRSPs are one of the best ways. But RRSPs are not for everyone; and it’s not the only option.
RRSPs are best for individuals with higher incomes ($46,000 or more); if your 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 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 $46,000 to $65,000 range. If you buy $1,000 RRSP, you get your normal tax savings of $280 or more AND you also increase your Canada Child Benefit by $70 for the year. That’s a combined savings 35 to 51%!
What family situation would save the most? Family income of $46 to 65,000 and one spouse earns more than $46,000, 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 definitely want to contribute to this plan; it’s free money!
Should you consider an RRSP loan? They can be a good idea if you do not have the money to buy the RRSP. Only borrow what you can repay in 12 months.
Don’t buy RRSPs
So who shouldn’t buy RRSPs? If you do not have children under 18 and have income under $46,000 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 46,000, the answer is maybe. Get an estimate of your 2017 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.
Canada Revenue Agency (CRA) opens Monday February 26 so we can start electronically filing tax returns that week. 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.
Walk in Service
After great success last year, we again are offering walk-in no appointment service for those with basic income tax returns. Call the office to find out what days and times we offer this service.
We look forward to helping you maximize your refund or minimize your amount owing. Most tax returns are due April 30. Self-employed and their spouses have until June 15.
I became a Financial Advisor in February 1998 and in 2018 I celebrate my 20 years of helping many of you with Retirement Planning, Tax Advice, and Estate Planning in your Final Quarter of Life.
I have been writing these columns in the Dawson Trail Dispatch every month for the past 20 years. That’s 240 articles! Ok, maybe I missed one month. Thank you to my loyal readers (many of you I have never met!) and thanks to Dan Guetre for his continued support.
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