The RRSP – 5 questions to ask yourself before contributing

RRSP season is in full swing!

You have until March 1, 2022, to make your contribution for 2021, but is an RRSP really the best retirement savings strategy for you?

Here are 5 questions to ask yourself before contributing to an RRSP.

1. Will your marginal tax rate increase anytime soon ?
Given that the RRSP contribution reduces taxable income and that the tax savings are calculated on the marginal rate, would it be better to wait until you have higher income and thereby a better tax advantage on your RRSP contributions?

2. Will your marginal tax rate on withdrawal be lower than your current rate ?
To have a real tax saving, make sure that the percentage of tax paid during the withdrawal will be lower than the percentage of tax saved during the contribution.

3. Will my RRSP contribution provide me with the retirement income I need ?
Without knowing your needs in terms of retirement income, your RRSP contributions are made without real objectives, and you may have too many or not enough. If the amount is not enough, perhaps reinvesting your tax refunds back into your RRSP is a strategy to consider.

4. Am I really using all the advantages related to the RRSP ?
If your marginal tax rate is lower than that of your spouse, why not use it and save even more. Did you know that it is not mandatory for the contribution to come from the contributing spouse?

5. Am I well surrounded ?
I can’t say it enough, it is essential to master all the particularities of the RRSP, but also to be familiar with all the investment products on the market to make informed choices. If your knowledge of strategies, types of investments and taxation is not developed, refer to a certified representative. An advisor can help you answer the 4 previous questions and establish the best investment strategy for you.

Also note that the RRSP contribution can allow you to qualify for certain programs such as family allowances, additional subsidies on contributions to education savings plans and many others. These various advantages can represent interesting sums. Talk to your advisor.

Katie Lefebvre
Partner of your financial succeed