Overlooked RRSP Strategies

There are a number of common RRSP strategies that many of us use on a regular basis. These include making regular monthly deposits, borrowing to make RRSP contributions and making contributions at the beginning of the year instead of the end of the year. Here are some strategies that may get overlooked:

Take advantage of the pension income amount - There are more and more people working well beyond age 65 for a number of reasons. Pete started working fewer hours after his 65th birthday and wants to defer retirement income as long as he can. He realized, however, that he could take just enough money from his RRSP to buy an annuity that pays him $2,0001 per year until age 71 and receive this income tax-free.

If Pete doesn't really need this income, he can simply invest it in a non-RRSP and use it to provide some extra income in the future. This will provide a little more income in his later retirement on which he will have to pay very little income taxes.

Reduce or eliminate taxes on a terminal tax return - Sally, a new widow, had to complete and file a terminal tax return for her husband, Jake. She received a substantial amount of money from his life insurance and he had a lot of unused RRSP contribution room. Jake had earned about $65,000 in salary in the year of his death. Sally was able to make a large contribution to a spousal RRSP with Jake as the contributor. By reducing his taxes to zero2, all the income taxes withheld during the year were refunded. She deposited the refund in her own RRSP.

Make a contribution, but delay the deduction - Just because you make an RRSP contribution for a certain tax year doesn't mean you have to take the deduction right away. Theresa received a small inheritance and also had some unused RRSP contribution room. She made a deposit to her RRSP up to her limit, but did not take a deduction when she filed her tax return. She was a student at the time and had very little income. Theresa can carry forward the actual deduction until she has enough earned income to make it worthwhile. Meanwhile, her deposit will grow tax deferred inside her RRSP.

This strategy can also be used to take a deduction only for the amount of income that falls into the highest marginal tax bracket each year until the contribution amount is all used up. A large deposit now can provide maximum tax savings for several years to come and continues to grow tax deferred.

Pay a small penalty - Penny turned 71 this year and is still working. Her earned income this year determines her RRSP contribution for next year, but she has to convert her RRSPs to an income by the end of this year. By making her contribution in early December and then converting it to a RRIF by the end of the month, she will pay a 1% penalty but get the full deduction next year. For example, if she makes a $15,000 deposit, it will cost her $150 as a penalty, but she will get a $3,300 savings in federal taxes3, plus provincial taxes, on next year's income.

1 Receiving income tax-free income from an annuity depends of a variety of factors. Talk to your advisor about your specific situation. 2 Average Tax rate for Ontario resident earning $65,000 in 2019 was 19.24%. As each person's personal situation may vary from this example talk to your advisor about your specific situation. 3 This assumes an Ontario resident earning $49,100 and paying an average tax rate of 15.87% in 2019.

Want help with your RRSP strategies? Call today!


* For informational purposes only and not intended to provide specific retirement planning advice. Any tax saving calculations used in this article will vary from province to province depending on each person's individual tax bracket and the personal tax rates in effect from year to year. Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchases declines.)

Copyright © 2020 Life Letter. All rights reserved. This article is provided for informational purposes only and is not intended to provide specific financial advice. It is strongly recommended that the reader seek qualified professional advice before making any financial decisions based on anything discussed in this article. This copyright information presented online is not to be copied, or clipped or republished for any reason. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision.

What our clients are saying...

  • We valued receiving a detailed report and explanation of our finances. When working with a financial planner, we expect to have our questions answered with adequate detail and to have a plan developed to help grow our money. Our expectations were clearly met and we would be happy to recommend Anthony to anyone looking for a Financial Plan.

  • We valued the fact that you sat down with us, heard what we wanted to say, asked for clarification and offered suggestions, and then came up with a detailed and well-reasoned plan in a short period of time and communicated that back to us so that we knew what we needed to do moving forward. Thanks!

    Our expectations for a financial planner are several fold: (1) Does the planner communicate well, in that they both listen but also offer suggestions and ideas in a clear easy-to-understand way, (2) Are they able to meet their client at the same energy/level and meet their specific needs? In our case we needed a tax minimization strategy within a short turn around time. (3) Did the planner actually do their job, in that were they able to provide ideas and suggestions that helped address the client's asks?

    We came to see you because we realised that we hadn't looked at how to minimize the taxes related to my Father’s estate planning and my mother’s future financial planning, and you were able to tell us things that we didn't know about, and offered us solutions that helped us with our future financial planning.

    You definitely met our expectations! In some ways, you actually exceeded our expectations. We were hoping that you could respond quickly, and you came up with a detailed and well-reasoned plan faster than we expected!

    Our only area of improvement we could think of was, given that the plan was very detailed, if we had an explicitly spelled out action plan with a timeline for completion.

    We are very happy and would definitely recommend you to our family and friends and in fact have already done so!

  • Anthony made the process very clear and explained each step along the way. He was very honest and straight forward. My expectation from a financial planner is that they are honest and transparent. Anthony definitely met my expectations and I would be happy to recommend him to my family and friends.

  • When working with a financial planner our expectations are to maximize our investments and have a solid plan for retirement. We now have a greater awareness of our current portfolio and options to best protect our estate. We were provided with good information to use in order to make better investment and estate planning decisions. We would gladly recommend Anthony to our family and friends.

  • We value the personal service and detailed explanations we receive from Anthony on an ongoing basis. We feel comfortable recommending Anthony to our family and friends as he is someone who we can trust and has our best interests in mind. He has been great at helping us work towards a comfortable and manageable retirement.

  • The financial planning process we went through was clearly outlined and explained to me. I wanted to have a better understanding of my financial position and to know whether I could retire early or not.

    I am happy to recommend Anthony to my family and friends.