How to Save Money on Your Taxes by Maxing Out Your RRSP Contributions
The deadline for your RRSP contributions is fast approaching. You can gain valuable tax benefits from maxing out your RRSP contribution this year. If you max out your contribution level before March, you could receive a tax deferral of up to $26,230 on your 2018 tax return.
The Registered Retirement Savings Plan is a savings account registered with the federal government. You can use your RRSP to save for retirement and for current tax advantages. RRSPs can be beneficial for anyone, but they’re particularly important for anyone who is self-employed.
What’s the Deadline for Contributions?
The deadline for making your contributions so you can claim the amount on your 2018 tax return is March 1st, 2019.
Can I Open an RRSP?
Anyone can open an RRSP, as long you’ve earned income and plan to file a tax return.
How Do I Set it Up?
You can set up your RRSP with a financial institution of your choice. This may be a bank or trust company, an investment firm, a credit union, or an insurance company. You may also choose to create a self-directed RRSP.
How Much I Can Contribute?
Your contribution room for your RRSP is a percentage of your income.
In 2018, your RRSP contribution room will either be 18% of your earned income in the previous year, up to the maximum contribution amount, which is $26,230. In 2019, your contribution room will still be 18% of your income, but the maximum contribution amount will increase to $26,500.
If you have a pension plan, there will also be a pension adjustment. To learn what your exact RRSP contribution limit is, find the amount on your most recent NOA (Notice of Assessment) by logging into your MyCRA account.
Deduct Your RRSP from Your 2018 Tax Return
You’ll be able to gain advantageous tax savings on your 2018 tax return if you contribute to your RRSP before March 1st, 2019.
You can also claim amounts you contributed to a spouse or common law partner’s RRSP. Or, you can roll your credits forward to a future year. For example, you could contribute a certain amount now and wait to claim the amount until you file your taxes for 2019 (or beyond).
Use Your RRSP for a Down Payment or School
You can use your RRSP to save for retirement. Your specific investments may also earn more money for your RRSP. Different types of RRSPs come with different levels of investment risk, so be sure to discuss your investment choices with your bank or financial institution. Cancom Development offers unique investments opportunities which can be used toward your RRSP. Get in touch with us to learn more.
You can also remove money before retirement without penalty under these two plans:
The Home Buyer’s Plan (HBP)
Under the Home Buyer’s Plan, you can withdraw up to $25,000 from your RRSP to buy or build a home for yourself, or for someone related to you with a disability.
The Lifelong Learning Plan (LLP)
You can also withdraw savings from an RRSP to fund full-time education or training for yourself or your spouse or common-law partner. Be aware that you can’t use it for your children, though. If you’d like to start saving for your children’s education, you’ll want to open an RESP.
Gain Even More Tax Advantages with a TFSA
If you’ve maxed out your RRSP contributions, you can also start a Tax-Free Savings Account. While you won’t be able to receive a break on your present tax return, you will be able to withdraw money from your TFSA during retirement (or at any time) without paying taxes. You’ll also won’t pay taxes on your earnings from a TFSA.
The yearly limit for TFSA contributions increases from $5,500 in 2018 to $6,000 in 2019. However, if you’ve never contributed to your TFSA before, you can contribute for previous years as well, starting from 2009. That means you could be eligible for up to $64,000 in tax-free savings in 2019.
You can learn what your exact TFSA contribution limit is in 2019 by logging into your MyCRA account.
Looking for investments for your RRSP to earn extra income for retirement? Cancom Development has unique opportunities for a set number of investors. To learn how you can max your RRSP contributions with investments that make sense, call one of our financial representatives today.
**This blog was originally posted on Cancom.