- Know Your Contribution Limit
- Your 2024 RRSP contribution limit is 18% of your earned income from 2023, up to a maximum of $31,560. Check your CRA My Account to confirm your exact limit. Contributing more than your limit can result in penalties of 1% per month on the excess amount, so it’s crucial to verify before making contributions.
- Contribute Before the Deadline
- The RRSP deadline for the 2024 tax year is March 3, 2025. Contributions made before this date can reduce your taxable income, potentially leading to a bigger refund. If you wait until after the deadline, your contributions will only apply to the next tax year, which may not provide immediate benefits. Planning ahead ensures you optimize your tax savings and avoid missing out on potential deductions.
- Carry Forward Unused Contributions
- If you can’t contribute the full amount now, don’t worry! Unused RRSP room carries forward indefinitely, allowing you to maximize tax savings in future years. This is especially useful if you expect to earn more income in later years when your tax bracket is higher. By making contributions when you’re in a higher tax bracket, you can maximize deductions and lower your taxable income more effectively.
- Spousal RRSPs Offer Tax Benefits
- If one spouse earns significantly more, contributing to a spousal RRSP can help split income in retirement and lower your overall tax bill. The higher-income spouse can contribute and receive the deduction, while the lower-income spouse benefits from lower-taxed withdrawals in retirement. This strategy can result in significant tax savings over time, particularly for couples planning their retirement income streams.
- Invest Strategically Within Your RRSP
- Contributions alone reduce taxes, but investing within an RRSP allows your money to grow tax-free until withdrawal. Consider diversifying your portfolio with stocks, bonds, mutual funds, or ETFs to maximize long-term gains. Keep in mind that RRSP withdrawals are taxed, so it’s best to plan withdrawals strategically, such as during lower-income years or by converting to a Registered Retirement Income Fund (RRIF) to manage tax liabilities.
These simple tax strategies can help you reduce your tax bill and maximize your refund. If you need personalized tax planning, email us at tim@reynoldsaccounting.ca to find out how we can help.
