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RRSP investors urged to get cash in now, work out plan later

Investors rushing to make the RRSP deadline can deposit money into a cash account and allocate it later.

If you're been putting off talking to your financial adviser about your RRSP contribution for this year, you'd better hustle.

The deadline for contributing to your RRSP and being able to deduct that contribution from your tax return for 2011 is Feb. 29.

"It is not too late to go in and see your adviser and put together a plan that meets your needs and your retirement plans," said Michael Atkinson, director of sustainable wealth management at Vancity.

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But Mr. Atkinson said if you don't have the time over the next week to sit down and do a proper review of your plan, you should put the money in an RRSP savings account for now so you at least get the deduction on your income tax return. Then, when you have the time, sit down with a planner and update your financial plan and make the necessary adjustments to your investment mix.

If you haven't yet contributed to your RRSP this year, you're not alone. A recent survey by Scotiabank found that just two in five Canadians or roughly 39 per cent said they planned to contribute to an RRSP for the 2011 tax season, down from 53 per cent a year earlier.

The decision to invest in an RRSP has been complicated in recent years, since the introduction of tax-free savings accounts, which give investors a choice of less tax now or less tax later.

While you are able to deduct your RRSP contributions from your income tax return for 2011 – giving an immediate boost to your tax refund this year – you'll be taxed on the money when you take it out in retirement.

However, with a TFSA you will not be able to deduct your contributions when you put money in the account and get the corresponding lift to your tax refund cheque, bit you will not be taxed on the money when you take it out.

"What's very important in that decision-making process is what is a person's tax liability at this point in time. What is their marginal tax rate and what is it they believe their marginal tax rate is going to be when they retire," Mr. Atkinson said.

Many banks and financial institutions are offering extended hours over the next week to give procrastinators the extra time they need to meet with financial advisers.

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Mike Henry, senior vice-president of retail products at Scotiabank, said his bank is offering a special interest rate on RRSP contributions for clients who may not have the time right now to talk to an adviser about their plan, but want to make a contribution before the deadline.

"We want to help people maximize the opportunity and not let it pass them by and get the RRSP contribution in. Then we'll sit down again over the coming month or so and have the longer plan conversation."

Mr. Henry stressed that investors need to take the time to construct a plan that fits their needs.

"A plan doesn't need to be a great big thing. It doesn't need to involve a lot of math or complications. It can be as simple as understanding what your financial priorities are and then how we balance those things," he said.

The key though is making the Feb. 29 deadline, if you want the deduction on your income tax return for 2011.

But if you miss the deadline, you still have options.

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Your contribution limit will carry over to next year, giving you plenty of time to set up a monthly contribution plan to avoid the deadline rush next year.

For tips, stories, videos and live chats ahead of this year's RRSP contribution deadline, check the Globe Investor 2012 RRSP season section for daily updates.

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