Mark your calendars! Its that time of year when Canadians focus on tax-advantaged savings for their retirement. The deadline for Registered Retirement Savings Plan (RRSP) contributions for the 2019 tax year is March 2, 2020. But before you go running out to invest your money into RRSPs, there are a few things you should know.
First off, with an RRSP contribution, you get a tax deduction upfront. This generally results in a tax rebate for the current tax year in which you invested. However, the amount withdrawn is fully taxed, and not just on the income earned on the investment. How much you will get taxed depends on what you made during the year you withdrew it. For example, if you are still working when you withdraw the money you will be taxed a higher rate than if you were retired.
Another important thing you need to be aware of is your RRSP contribution limits since you generally pay hefty financial penalties if you exceed them. This year, the contribution limit for 2019 tax year is 18% of earned income you reported on your tax return in the previous year, up to a maximum of $26,500 plus any carry forward room you may have had from previous tax years. A good place to find out what your unused contribution to your RRSP is online on your CRA account or from your CRA Notice of Assessment, which you would have received last year when your tax return was processed.
The next thing to think about is how and where you will invest your money. There is a wide range of investments you can hold in your RRSP and each has its own benefit. Some of these are:
GIC’s (Guaranteed Investment Certificates) are an option where you choose your term of investment and your rates are locked in for that term. The advantage of this type of investment is it is guaranteed and you won’t lose the principal. GIC’s have less risk, so this product is best suited for people who want to have a minimal risk investment.
- Mutual Funds and Stocks are investments where you buy shares or units of various companies. The prices on these can fluctuate daily. While you will not lose the shares or units that you buy, there is a risk that they can drop lower then what they were purchased at. While these investments are not guaranteed and are riskier, they do offer the potential for higher returns than on GIC’s.
If you have any further questions on how to maximize your tax credits for the 2019 tax season, give us a call at Keenans Accounting Service at 705-526-7628. We’ll keep a keen eye on your books so you don’t have to.