Last-minute RRSP tune-up

Know what March 1, 2011 is? Yep, it’s the deadline for making your 2010 RRSP contribution. But don’t panic, you still have time to take advantage of some RRSP tune-up tips that will save money on your taxes this year and make your retirement more financially comfortable.

Know what March 1, 2011 is? Yep, it’s the deadline for making your 2010 RRSP contribution. But don’t panic, you still have time to take advantage of some RRSP tune-up tips that will save money on your taxes this year and make your retirement more financially comfortable.

On your 2010 tax return, you may make a maximum RRSP contribution equal to 18 per cent of your 2009 earned income or $22,000, whichever is less, minus any pension adjustment for 2009, plus any and all unused contribution room carried forward from previous years. You’ll find your personal allowable 2010 contribution on your most recent notice of assessment from the Canada Revenue Agency.

Now, let’s get to those tax-deferring, income-building tips:

n Make your maximum allowable contribution each taxation year – it’s the best strategy for immediate tax savings and maximum long-term potential RRSP growth.

n Fill up unused contribution room as soon as you can – you’ll enjoy even more tax savings this year and increase potential RRSP growth over time.

n Consider an RRSP loan – this can be a smart strategy for maximizing your 2010 contribution and filling up past unused contribution room. The money you borrow generates an immediate tax break and adds to your tax-deferred RRSP growth potential. However, you must get a loan at a low interest rate and pay it back as quickly as possible, even by using your extra tax savings to help pay it off. You can get a special RRSP loan with a payback schedule tailored to your needs at most financial institutions.

n Do the splits – if your spouse’s income will be lower than yours over the next few years, or in retirement, a spousal RRSP can generate a retirement income that is subject to less tax.

You can contribute both to your RRSP and your spouse’s. Your total contribution can’t exceed your personal yearly contribution room but your spouse’s limit is unaffected by your contribution and he/she can still make a contribution up to his/her yearly limit.

n Start now to save next year – now is the perfect time to start making regular RRSP contributions for 2011. You won’t sweat coming up with a large last-minute lump sum contribution next February and you’ll get the value of dollar-cost averaging, an investment strategy that lets you take advantage of market fluctuations. When the market drops, your money will buy more fund units. When it is up, you’ll buy fewer units but the average price paid over the long term in constantly rising markets will be lower. At the end of the year, you’ll have maximised your RRSP contribution, your tax deduction and the tax-sheltered growth in your RRSP.

There are other RRSP-building, tax-savings strategies you should look at. Your professional advisor can help with that, along with all your wealth-building strategies.

Andy Erickson is a division director with Investors Group Vernon. This column presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances.