Perhaps this year more than previously, people saving for their retirement may be thinking of not making a contribution. Last year’s poor equity market returns heightened investors’ fear and, many investors are concerned about earning sufficient income this year or worried about their job security to feel comfortable maximizing their RRSPs.
Clearly one’s personal situation in the face of these economic conditions will determine if a contribution is made or not. However, even making a partial allowable RRSP contribution is better than no contribution. You’ll need those retirement savings during your non-working retirement years so here are some tips for finding the money for a RRSP contribution:
- Set up an automatic monthly contribution from your bank account directly into your RRSP. You can start with a small amount and increase it as your situation improves.
- Speak with your employer about setting up an automatic payroll contribution to a company-sponsored RRSP. By doing this, your employer can reduce the amount of income tax withheld so the impact on your pay cheque is lessened. You may also find that your employer will match some or all of your contribution.
- You don’t have to have access to a payroll contribution through an employer-sponsored RRSP to have income tax deducted at source. If you regularly contribute to a RRSP, apply to CRA to have the withholding tax deductions reduced by your employer. Write to the Chief of Source Deductions at your local taxation office, giving estimated taxable income, Employer’s name and address, and a copy of the PAC plan contract.
- If you have a self-directed RRSP, unlike other types of RRSPs, there are a wide range of eligible investment choices available. Self-directed investors may hold any combination of qualifying bonds, GICs, mutual funds, coupons, common and preferred shares, and foreign investments. If an investor does not have cash available to contribute, he or she may make a “non-cash” contribution instead. A “non-cash” contribution is an investment of a qualifying security that is already owned by the contributor and that is deposited into the self-directed RRSP without being cashed in or redeemed. The value of the RRSP contribution receipt equals the market value of the security when it is deposited to the RRSP.
- In these uncertain economic times, frugality and the purchase of less “stuff” is being more valued. If you have a birthday or other significant personal event where family want to buy you gifts, this may be the perfect time to ask for cash that can be used to contribute to your long-term retirement savings plan.
- Consider borrowing to contribute to your RRSP, especially if the loan can be repaid quickly and the contribution generates a tax refund.
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