You’ve had March 3 circled on your calendar for weeks. You have a sizable chunk of change earmarked for your RRSP burning a hole in your pocket.
And then, as it so often does, life happens. All of a sudden you’re looking at the RRSP deadline in the rear-view mirror. What then?
The deadline might have passed, but the sky isn’t falling. Just put the money into your registered retirement savings plan anyway.
“Just because a person missed out on the contribution for this year doesn’t mean that that contribution room has gone,” says Dean Owen, vice-president of Cherry Financial Services in Saskatoon and former chairman of Advocis, the Financial Advisors Association of Canada.
“Contribution room is always cumulative, so if you make your contribution past the deadline, it doesn’t necessarily mean that it will count toward your 2013 income, but it will still be a contribution that you can use toward your 2014 taxable income, so all is not lost.”
However, that may change slightly if you are moving tax brackets, resulting in a lower refund down the line, but if the status quo is being kept, the fallout from missing the deadline is quite minimal.
As Sandra Abdool, a Royal Bank of Canada regional financial planning consultant based in Burlington, Ont., put it, “The only thing that that individual has missed is the opportunity to grow that money for retirement starting a few days later.”
Consider the alternatives
Ms. Abdool actually believes that missing the deadline may be a positive for some clients, offering them the chance to take stock of the situation and properly examine their overall plan and ultimate goals. “Maybe this becomes an opportunity to stop and think, ‘Should I have been putting that money into my RRSP in the first place?’”
Alternatives that Ms. Abdool suggests include placing that money into a tax-free savings account (TFSA) for the greater flexibility it offers, putting it into a registered education savings plan (RESP) to save for a child’s postsecondary education, or simply using the funds to pay down outstanding debt.
Avoiding an encore
While many use the March RRSP deadline as an annual reminder to think long-term toward retirement, planning for your journey through life once you leave the work force shouldn’t necessarily crop up with the same frequency as Christmas.
“I see more people in the next two weeks to discuss their retirement plan than I will see throughout a lot of the year,” Mr. Owen says. “We often focus on these last two weeks of February to do our entire financial plan, and that shouldn’t be the case. We really should be looking at doing this kind of thing much more often than we do.”
Mr. Owen suggests making a monthly contribution into some form of continuous savings plan, such as through a deduction off your paycheque or a preauthorized payment. That way you can forget about last-minute deadlines.
“Find out what on average you can put away, whatever you can afford,” he says. “Put it away on a monthly basis and forget about it.”
Plant your oak tree
As Mr. Owen states candidly, “The best time to plant an oak tree was 20 years ago; the next best time is now.”
With or without your contribution, this year’s RRSP deadline will come and go, just like it does every year. Most of us only get one crack at retiring, and so now is as good a time as any to re-examine what you’re doing.
“I truly believe that clients need to sit down and put this on paper and determine, ‘What are the actual steps I need to take?’ And move away from the idea of deadlines,” Ms. Abdool says. “The deadlines are minimum requirements; if you put your own plan in place then a deadline that has come and gone will not be the critical piece that determines whether you achieve your life goals.”
A solid retirement plan should alleviate the need to rob the rich to feed the poor, but that doesn’t mean that Robin Hood and his band of merry men can’t offer some valuable lessons.
“I always look at it kind of like an archer,” Mr. Owen says. “You’ve got your position today, you’ve got your target that’s down the road, whether that’s 20 years or 30 years or five years down the road.
“Quite often, that target, as you get closer to it, will move around a bit, but as long as you have a plan, and as long as you have your aim and as long as you keep a good stock of arrows, you’re going to get there.”