It’s almost time to get your 2017 income tax statements ready, and while we’re well into 2018, there is one more thing you can do to increase your 2017 tax return: contribute to your RRSP.
One of the biggest advantages of investing in a Registered Retirement Savings Plan (RRSP) is that any contributions you make will reduce your taxable income in the year the contribution is applied to. While the prior tax year is over, the government allows you to also apply contributions to the prior tax year if they are made in the first 60 days of the following year. The deadline for 2017 RRSP contributions is March 1, 2018.
Another key benefit of RRSPs that should not go unmentioned is that any income earned in your RRSP account is tax-sheltered until withdrawn so it grows faster. And, since you’ll likely be in a lower tax bracket than you were in your peak investing years, your earnings after tax will also be larger.
Here are a few ways you can bulk up your RRSP to increase your tax return this year and beyond.
Open an RRSP
If you don’t already have an RRSP, consider opening one and contributing before the deadline (note that at Invisor, we have no minimum investment amount, so you can contribute whatever you’re comfortable with).
An account can be open and funded in as little as 2 days, and it’ll take you less than 15 minutes to go through the steps to open it at invisor.ca. Even if you’re not 100% sure you can fund it this year, get an account open and ready so you can make a last-minute contribution if need be.
Make a lump sum contribution
If you have some extra cash to spare, consider making a lump sum contribution to your RRSP before the March 1 deadline to bulk up your refund.
If you want to get ahead for next year, think about using your 2017 refund (once received) to do so. While it’s tempting to use your tax return on a fun purchase or vacation, there are ways to stretch your return dollars to help you achieve your financial goals. One of those ways is to reinvest your tax return. If you choose to reinvest your return into your RRSP, you’ll be setting yourself up for next year’s tax season and ensuring a tax benefit. Here are some other ideas for using your tax refund wisely.
Set up a pre-authorized contribution
Setting up a pre-authorized contribution (PAC) might not put much cash into your RRSP before the 2017 tax deadline, but it will certainly give you a leg up for the year ahead. Setting up a PAC on your account will make sure you have steady cash being invested; you won’t have to worry about manually transferring money into your account, it will keep you consistent with your saving, and you’ll benefit from dollar cost averaging.
Take advantage of your Employee Savings Plan
If you have an Employee Savings Plan (ESP) at work, use it – it’s essentially free money. It’s also an effective way of transferring pre-tax dollars to your RRSP. By setting up your ESP to automatically transfer a portion of your pay into a registered account, you’ll maximize your contribution (rather than getting taxed on your take home pay and then transferring a portion of that into your RRSP).
There’s still time to make your RRSP contributions count towards the 2017 tax year. Use these tips to help you make the most of your tax refund, and set yourself up for 2018.
To get started easily (online, from any device) consider opening an RRSP with Invisor. It’s easy: go through our quick process here to open a new account, plus take advantage of fast and free transfers from your existing accounts, and manage your contributions all from your secure dashboard. If you need help at any point throughout the process, don’t hesitate to reach out to us.