Investors should consider the following strategies for their RRSP:
Make your RRSP contribution on time
RRSP contributions must be made by the end of the first 60 days of 2016. The RRSP contribution deadline is February 29th, 2016 and the RRSP contribution limit for 2015 is $24,930. Make your contribution as soon as possible as you will have more money working for you sooner. Refer to your latest Notice of Assessment, which will inform you of your available RRSP contribution limit. Any excess contributions exceeding $2,000 are subject to a 1% per month penalty tax.
Make the most of your unused RRSP contribution room
If you have contributed less than the maximum permitted in prior years to your RRSP, you should have unused RRSP contribution room carried forward to 2015. Consider topping up your RRSP to the maximum possible in order to take advantage of the benefits RRSPs have to offer. If you’re short on cash to maximize your RRSP room, consider borrowing to make your RRSP contribution. Speak to your financial advisor about ways you can maximize your RRSP contribution room.
Contribute to a spousal RRSP
If you have a spousal RRSP established, make your spousal RRSP contribution before year-end to minimize the possibility of having the attribution rules apply on any future withdrawals. For example, if you make a spousal RRSP contribution this year, your spouse can safely withdraw funds from the spousal plan and pay tax on the income as early as January 1st, 2018. A spousal RRSP contribution made in January 2016 will mean that your spouse will have to wait until January 2019 before he / she can safely withdraw funds without the attribution rules applying.
Base withdrawals on age of younger spouse or common law partner
If you will be 71 by the end of 2015, you must convert your RRSP to a RRIF and begin drawing an income from your RRIF. Consider basing the minimum RRIF withdrawal on the age of the younger spouse. This will keep your required annual RRIF income as low as possible each year and allow you to keep more in your RRIF, thus deferring tax longer.
Taxpayers with pensions, income plans and government benefits also have opportunities to minimize tax by implementing the following strategies:
Make an advanced RRSP contribution
If you are 71 by the end of this year and have earned income in
2015, consider making an RRSP over contribution in December
2015. Earned income in 2015 creates RRSP contribution room for
2016. However, you will not be permitted to contribute to an RRSP
next year, since you are required to convert your RRSP to a RRIF
before year-end. This strategy does mean that you will be overcontributed for one month and hence subject to a 1% per month penalty tax. However, you will also be entitled to an RRSP deduction in 2016 that will provide tax savings that will far outweigh the penalty tax cost.