The snow and cold has occupied most of our free time so far this year; but keep in mind that there’s less than a month left to contribute to your RRSP for the 2016 tax year! March 1, 2017 is the last day contributions can be made. Before you make your contributions, here are three tips to help you best leverage your RRSPs:
If you have an RRSP deduction limit as shown on your 2015 Notice of Assessment and you are a BC resident, the following are the income tax savings you could realize from making an RRSP contribution:
2. RRSP as a Tax Deferral Vehicle
Remember, an RRSP is a tax deferral vehicle – you will be taxed on the funds when withdrawn. That said, would you rather pay $1 of income tax tomorrow or $1 of income tax today? Actual tax savings should result, as you likely will be in a lower tax bracket when you withdraw your funds at retirement.
3. Spousal RRSP
A spousal RRSP is an RRSP in which one spouse is the contributor and the other spouse receives funds from the RRSP. Spousal RRSPs can help shift future income from a higher income spouse to a lower income spouse. This can provide some tax savings when the receiving spouse withdraws funds from his or her RRSP, RRIF, or annuity. It might also reduce the clawback of Old Age Security from the higher income spouse and allow the lower income spouse to claim the pension income tax credit.
Spousal RRSPs provide immediate tax savings, since the person making the contribution gets the tax deduction while the spouse, rather than the contributor, is taxed on any withdrawals at a future date.
Take action today to secure your future. Learn how to maximize your RRSP benefits with CPABC’s RRSP and Tax Tips at www.rrspandtaxtips.com.