RRSP Contribution Deadline: March 1, 2021

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is an account created by the federal government to help Canadians save for their 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.

Tax-deductible

Your RRSP contributions are made with post-tax dollars and the contribution amount is deducted from your income on your tax return. For example, if you earn $60,000 last year and contributed $7,000 to your RRSP - you would pay taxes as if you earned $53,000 that year. The result – 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 result – you get the benefit of tax-free compounding of returns.

Tax-deferral

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.  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 2020 tax year, you can contribute 18% of your past year’s income or up to $27,230 - whichever is less. If you did not max out your RRSP contributions from previous years that 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.

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Canada Revenue Agency will tax your over-contribution amount at the rate of 1% per month until the amount is withdrawn from your RRSP.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 on the amount.

When is the contribution deadline?

The RRSP deadline for the 2020 tax year is March 1, 2021.

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

Talk to a financial advisor

Nothing beats personalized advice. To get the most of your RRSP contributions and take advantage of the investment earnings potential - talk to a financial advisor. UCU Wealth Strategies Group partnered with Credential Securities and Credential Asset Management 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 the UCU website 

*Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.