RRSP Contribution Deadline – March 1, 2023

 

You have until March 1, 2023, to contribute to your RRSP for the 2022 tax year. With an RRSP you can save for retirement while taking advantage of many tax benefits. Check your CRA Notice of Assessment to find your contribution limit.

If you are considering opening an RRSP and want to learn more about it, here is a quick primer to get you started.

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is a plan created by the federal government to help Canadians save for retirement. It is an account that provides a way to invest for retirement with certain tax-saving features. Think of it as an additional pension plan to supplement your existing government pension.

How does an RRSP work?

The most important feature of an RRSP is the way it is taxed. There are three tax advantages to opening an RRSP, your contributions will be:

• Tax-deductible - Your RRSP contributions are made with pre-tax dollars and your contribution amount will be deducted from your income on your tax return in the year you make the contribution. For example, if you earned $60,000 last year and contributed $7,000 to your RRSP - you would pay taxes as if you earned $53,000.

The benefit – you will pay less income tax or you may even receive a tax refund.

• Tax-sheltered - The investments in your RRSP grow tax-free and you won’t pay tax on your investment earnings while they stay in your plan.

The benefit – you get the benefit of tax-free compounding of returns.

• Tax-deferred - You do not pay tax on the contributions going into your RRSP - but you will pay tax on the savings you withdraw from your RRSP, including both contributions and investment earnings.  You must start withdrawing from your RRSP the year after you turn 71.

The benefit – you will pay less tax in your higher income years where you may be in a higher tax bracket and less tax in your retirement years where you may be in a lower tax bracket.

How much can I contribute?

RRSPs are registered accounts and are subject to contribution rules.  For the 2022 tax year, you can contribute 18% of your previous year’s income or up to $29,210 - whichever is less. If you did not max out your RRSP contributions from previous years' tax filings that unused amount carries over.

The easiest way to check how much contribution room you have is to look at the Notice of Assessment you receive from the Canada Revenue Agency (CRA) after filing your taxes.

When is the contribution deadline?

The RRSP deadline for the 2022 tax year is March 1, 2023.

What types of accounts and investments are allowed in RRSPs?

You can hold many types of investments in an RRSP. They include:

• Cash
• Mutual Funds
• GICs (Guaranteed Investment Certificates)
• Stocks
• ETFs (Exchange-Traded Funds)
• Bonds

Can I over-contribute to an RRSP?

Canada Revenue Agency will tax your over-contribution amount at the rate of 1% per month until the amount is withdrawn from your RRSP. The CRA does allow a $2,000 grace amount for over-contribution - but that amount is not tax-deductible and you will be charged tax.

Talk to a financial advisor

Nothing beats personalized advice. To get the most out of your RRSP contributions and take advantage of the investment earnings potential talk to a financial advisor.

UCU Wealth Strategies Group can help you make smart investment choices. They will look at your financial situation and help you create an investment strategy that is right for you and your retirement.

For more information, please visit your local Branch or the UCU website.

TFSA 2023 Contribution Limit - $6,500

You can contribute up to $6,500 to your TFSA this year. You may be eligible to contribute even more if you have contribution room remaining from previous years.

With a TFSA you can build your savings faster by not paying tax on your earnings. Save for anything you want from a down payment for a house, post-secondary tuition, or a vacation – all with the flexibility of withdrawing your money when you need it without penalty.

If you are considering opening a TFSA and want to learn more about it, here is a quick primer to get you started.

What is a TFSA?

A Tax-Free Savings Account (TFSA) is a registered account that allows your investment earnings to grow tax-free. It is designed for any savings goal – big or small. Withdrawals can be made at any time without penalty and the earnings on your investments will not be taxed.

What are the benefits of a TFSA?

• Flexibility – You can choose investment options suitable for your financial needs and you can withdraw any amount from your TFSA at any time without penalty
• Tax-free growth – Your investment earnings grow tax-free in your TFSA and you will not be charged on the earnings when it is withdrawn
• Rolling contribution limits – The amount of a withdrawal from your TFSA can be added to your contribution room the following year

How does a TFSA work? Think of a TFSA as a basket that allows you to hold more than just GICs – you can hold stocks and mutual funds as well.

Contributions to a TFSA are made with after-tax dollars – since you paid taxes on the money going into a TFSA you will not have to pay taxes on the money withdrawn from a TFSA.

The earnings on your investments grow tax-free. The investment gains are not taxed inside a TFSA and they are not taxed when withdrawn from a TFSA.

What are the permitted TFSA investment options?

You can hold any of the following investment options in your TFSA:

• Cash
• Stocks
• Bonds
• Mutual Funds
• GICs (Guaranteed Investment Certificates)
• ETFs (Exchange-Traded Funds)

How much can you contribute?

The TFSA contribution limit for 2023 is $6,500 – but you can also carry over unused contribution room from previous years.

The current lifetime contribution room is $88,000 – provided you were at least 18 years old in 2009, the year TFSAs were introduced by the federal government. This means if you are at least 32 years old and have not contributed to a TSFA – you are eligible to contribute the full $88,000.

If you withdraw funds from your TFSA, the amount you take out is added back to your contribution limit for the following year.

You can find your TFSA contribution room by visiting the Canada Revenue Agency website.

Can you over-contribute to a TFSA?

Make sure you know your contribution limit – the CRA will issue a penalty for over-contribution. If you exceed your contribution limit you will be charged 1% a month for your over-contribution amount until you withdraw it.

I have an RRSP - do I also need a TFSA?

A TFSA can complement your RRSP - the two accounts can work together to improve your financial outlook in your retirement. If you have reached your RRSP contribution limit and have more savings to invest then a long-term investment in a TFSA can increase your retirement income.

Talk to a financial advisor

Nothing beats personalized advice. To get the most out of your TFSA contributions and take advantage of the investment earnings potential talk to a financial advisor. UCU Wealth Strategies Group can help you make smart investment choices. They will look at your financial situation and help you create an investment strategy that is right for you.

For more information, please visit your local Branch or the UCU website.