Missed the RRSP Deadline? Here is what you need to do
If you’ve missed the 2016 RRSP contribution deadline, you’re not alone. Every year thousands of Canadians miss the contribution deadline, but that doesn’t mean they are left without options. Unless you are thinking about your savings on a regular basis, or have a financial advisor driving you to make your contributions, it is completely understandable to miss the deadline. Unfortunately, if you missed the deadline this year, you will have missed out on contributing to that year of RRSP savings altogether. Here is what you can do to make up for that loss.
Make the next RRSP contribution deadline by starting to contribute to your 2017 RRSP now
The RRSP deadline for the 2017 tax year is February 28, 2018. If you wait to start contributing until later in the year you will run the risk of not leaving yourself enough runway to maximize your RRSP contribution without financially stressing yourself. If you begin contributing ahead of time, you can ensure that you maximize your tax-free contributions.
Furthermore, by contributing early, you are able to maximize your savings, as you will begin gaining from compounding interest much earlier. A full year of accumulated interest can stack up very nicely over the course of an RRSP, especially when you consider how that extra year of interest will compound over the next 20 or 40 years.
The bottom line is, if you missed the 2016 contribution deadline, don’t stress too much. The RRSP deadline should not be a moment of panic and rushed savings. By saving now, you not only enhance the value of your savings but also ensure that you are able to maximize your RRSP contributions for 2017.
Regularly contribute to your RRSP
Regularly contributing to your RRSP has a number of benefits. As mentioned above, it gives you the added opportunity to accumulate additional interest throughout the course of the year. This is better than just simply adding a lump sum right before the contribution deadline each year.
It is possible to set up your banking to automatically contribute each year. Just speak with your local branch or go online to do it. It will help hold you accountable and as soon as it becomes a routine you won’t have to think about contributing to your RRSP ever again. Success in anything comes down to building successful habits. Success in saving for retirement is no different.
Additionally, by contributing regularly, you avoid the need to borrow for an RRSP loan and save yourself some non-deductible interest costs this year.
Have your employer contribute for you
It is possible to have your employer contribute directly to your RRSP on your behalf. This allows you to skip paying income taxes on your earnings and instead have them immediately begin gaining tax-free interest on your earnings and have your contributions automated.
A good way to do this is to have your employer contribute a portion of your regular paycheque directly into your RRSP. Alternatively, speaking with your employer in advance, you can have bonuses be paid directly into your RRSP as well.
In working with your employer to contribute directly to your RRSP, you win in two ways. First, you are able to contribute tax-free earnings to your RRSP. Second, you are also entitled to a deduction from those earnings for that contribution, which essentially means you are getting your tax refund early.
Speaking with your employer now, and sorting out a plan early is a great way to ensure that you fulfill your 2017 RRSP contribution limit and don’t miss the deadline again next year.
Repurpose your TFSA assets to contribute to your RRSP
The TFSA is a much more flexible retirement savings plan for Canadians than the RRSP. As a result, you are able to take out money saved in your TFSA and repurpose it towards your RRSP. You can contribute the money that you took out back into your TFSA at any time.
For example, if you have gone through half the year and realize you need to contribute more to your RRSP, leveraging your existing TFSA savings is a great way to catch up to the contribution limit.
This allows you to realize a reduction in your taxable income and contribute to your RRSP at the same time. Another win-win.
If you missed the 2017 RRSP Deadline, you’re not out of the race
Missing an RRSP contribution deadline is not the end of the line. There are many options that you can use to make up the lost year of savings. Looking into options using your TFSA, if you have extra contribution room there can be a great start.
Missing the contribution deadline can be an opportunity for you to start focusing more on your savings. Speaking with your employer to set up a direct contribution into your RRSP can be the start of a wonderful savings plan for you and your family.
Ultimately, savings growth comes down to your own personal discipline. Missing the RRSP contribution deadline, at the very least, should make you think more about your savings and if it does that, you might as well capitalize that as a gain.
Thanks for reading!
If anything on this blog interests you further, please do not hesitate to reach out to me via email at [email protected] I’d love to talk about my financial services and advice in Vancouver, British Columbia’s lower mainland, and Canada in general.
- Brad Blair, CFP, CIM, FCSI, CHS.