Q – I’d like to contribute to my RRSP to get a tax deduction for the 2014 tax year, but I’m wondering if I’ve left it a bit too late. What’s the deadline for contributions, and what would be the best investment at this time? – Meg. D., Woodbridge, Ontario
A – Every year around this time, I’m asked this question by people who have left their RRSP contribution to the last minute or are first-time RRSP contributors. There are a few key things to keep in mind if you’re a last-minute contributor.
First of all, the RRSP deadline for contributions that will be eligible for a 2014 tax deduction is March 2, 2015. It is, of course, possible to make a contribution on the very last possible day, and many people do this, but financial advisors counsel against doing this except if you have no other choice. When you make RRSP contributions regularly through the year, you have the luxury of time to make well-thought-out investment decisions in the context of an overall financial and investment plan. In addition, your contributions begin compounding in a tax-deferred environment right away.
Next, know your contribution limits. For the 2014 tax year, the RRSP contribution limit was set at 18% of earned income to a maximum $24,270 (rising to a maximum of $24,930 for 2015). In addition, if you did not contribute the maximum you were entitled to in previous years, you may carry this “contribution room” forward and add it to your 2014 contribution without incurring any overcontribution penalties. Your RRSP carry-forward contribution room will appear on your previous year’s Notice of Assessment from the Canada Revenue Agency.
Place only qualified investments in your RRSP. For most people, this should not be a problem. Qualified RRSP investments include the following
Bonds. Federal, provincial, municipal government bonds are eligible. Bonds of publicly-traded companies are also qualified investments.
Exchange-listed securities. This encompasses common and preferred shares, exchange-traded funds, closed-end funds and other securities that are traded on designated stock exchanges in Canada or other countries. This also includes limited partnership units and royalty units. Canadian and U.S. stock exchanges are listed as designated exchanges. However, “over-the-counter” trading systems are not eligible.
Exchange-traded funds (ETFs). ETFs traded on designated stock exchanges are qualified RRSP investments.
Mutual funds. Canadian mutual funds are eligible – and there are thousands of these to choose from.
Options. Covered put and call options on qualified stocks are eligible as RRSP investments. Note, though, that I wouldn’t recommend options for everyone. These are specialized types of investment products, and can be quite risky if you don’t know exactly what you’re doing.
Money or cash deposits (including foreign currencies under certain circumstances).
GICs. Guaranteed Investment Certificates are, of course, qualified RRSP investments.
Other. Annuities, mortgages, certain shares of small business corporations and venture capital corporations can be put in an RRSP. You may also put money into investment grade gold and silver bullion, coins, and certificates. But again, I wouldn’t recommend rushing out and putting your RRSP retirement fund into precious metals or venture capital corporations, for example, without some pretty heavy-duty advice from a qualified adviser.
For more details, check the CRA website.
As to what might be the best investment for your RRSP, it’s here that many last-minute RRSP investors go astray. Most advisors will counsel that you should never invest in haste, because you will surely repent at leisure if you do. So while the list of qualifying RRSP investments is long and tempting, if you’re a last-minute RRSP contributor, it will be prudent simply to temporarily invest your RRSP contribution in cash (e.g., an RRSP savings account) or a near-cash vehicle, such as Treasury bills or money market mutual funds.
Do not buy GICs or any other type of locked-in vehicle at this point. You want to leave your investment highly liquid, so that when you consult with your advisor later, you can invest according to a plan that takes into account your financial objectives, risk-tolerance levels, and your other investment and financial assets.
Finally, for 2015, consider starting a regular monthly RRSP contribution plan. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 647-352-5735, or by email at firstname.lastname@example.org for a confidential planning consultation. Follow Robyn on Twitter and Facebook.
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