How to Maximize Your RRSP Contributions


Throughout the month of February, you will see governmental advertisements reminding you that income tax returns will be due shortly and that the RRSP contribution deadline is fast approaching. What is an RRSP though and why is it important to be financially ready for this tax season?

An RRSP is a Registered Retirement Savings Plan, and simply put, it is a plan which is registered under the government of Canada that provides tax benefits when saving for retirement. When you put money into your RRSP, you can deduct that amount from your taxable income. You don’t pay any tax on that money until you decide to withdraw it – and generally, most retirees are in a lower tax bracket when that time comes making it a perfect vehicle for retirement savings.

Here are some steps which can help you to maximize your RRSP contributions every year.

Step 1 - Know Your Limit

Every year, the Canadian Revenue Agency sends out Notice of Assessments which will clearly outline your yearly RRSP contribution limits. The maximum RRSP deduction limit is $21,000.00 but if there was left over room from previous years, that amount can be brought forward so it may be more than $21,000.00 in some cases.

Step 2 – Save Your Money at the Right Time

Knowing the right time to put your money into your RRSP can mean extra thousands of dollars in interest over the life of your RRSP. Here is an example using a $5,000 contribution with an 8% interest rate:

                At the beginning of the year over 30 years (contributing $5,000 per year) – $ 611,000.00

                At the end of the year over 30 years (contributing $5,000 per year) – $ 566,000.00

This is an additional $45,000 in just compound interest over the life of the RRSP. Who wouldn’t want almost an additional year of contribution in just interest?

Step 3 – Borrowing for your RRSP

Sometimes, it makes a lot of sense to borrow to be able to put some money into your RRSP. You can maximize your contribution will provide you with immediate tax savings for this year, providing you with tax deferred growth over the life of the RRSP while allowing you the remainder of the year to pay it off slowly.

 Saving your money in a RRSP not only provides a safe vehicle for a retirement income; it can also be cashed, up to $20,000, for first time home owners as a means of a down deposit. Open a RRSP today to help you save for your later years.



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