Dear Nancy Woods,
Every year I scramble to make my RRSP contribution near the deadline and every year I promise myself it is the last year I'm going to leave it to the last minute. Do you have any suggestions how I can avoid the stress of the last minute panic?
The RRSP deadline is set to be at the end 60 days into the new year. Most years it is March 1. What that means is that any contribution to an RSP account made in the first 60 days, the contributor has the choice of taxation year to claim the deduction from income. So if you made a contribution for $20,000 on February 15 for example, you can deduct that amount from your income for 2012 or 2013. It can be all or part of the $20,000 that you deduct. The important thing is that you checked that you have the allowable contribution room in the amount of $20,000 or more. Any unused room is carried forward so it can be used in future.
As for avoiding the last minute stress of meeting the deadline consider the following strategies:
1) Set up a monthly contribution plan to automatically contribute a fixed amount into your RRSP. This can be done by your financial institution or by post-dated cheques.
2) Contribute now for the current taxation year if you know your contribution allowance for 2013. This is based on your income of 2012 and will be noted on your tax assessment statement once your 2012 income tax return is assessed.
3) You can contribute "in kind" from your investment account to your RRSP. This will mean transferring an existing investment, eg shares, mutual funds, bonds etc. into your RRSP. The market value at the time of the transfer counts as a contribution for that amount. If you do make a contribution "in kind" check if that security has a capital gain or loss. If there is a gain, you will need to declare it as such. If there is a loss you will not be able to claim that as it is considered by CRA as a superficial loss.
4) See if your employer has a payment plan where a deduction can be made each pay cheque towards a savings plan. It will help you save before the money reaches your bank account.
The earlier you contribute to your RRSP, the sooner your can benefit from tax sheltering the funds.
Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Register for Nancy's upcoming seminar this Wednesday March 6th, How to Build an Income Portfolio by visiting her website www.nancywoods.com or calling 1-800-361-7459.You can send your questions to firstname.lastname@example.org as well.