6 RRSP Mistakes

With less than two months until the 2013 RRSP deadline; you’ll want to steer clear some of these common mistakes and missed opportunities when contributing this year.

Don’t be Hasty

Avoid making rushed decisions on how to invest your money.  If you are close to the deadline; make a cash contribution and then take some time to evaluate your investment options, you want to make sure the investment you choose matches your risk tolerance and retirement goals.

Don’t Skip a Contribution because Money is Tight

If you don’t have the cash available to make a contribution consider transferring securities from another non-registered account you have.  Or you could take out an RRSP loan; however make sure you are able to pay off the loan within two years – which can be helped by applying your tax refund directly to the balance.

Don’t Over-Contribute

You will want to review your notice of assessment to determine your contribution limit, because if you contribute over the $2000 allowable over-contribution amount; a 1% per month penalty will be imposed.  If you have excess cash above your allowable amount, consider investing it into a TFSA or another non-registered savings plan.

Don’t Misunderstand

Money that is invested into your RRSP should remain there until you retire.  However, if you do need the money to purchase your first home or go back to school you can withdraw it tax free under the First Time Home Buyers and Life Long Learning Plans.  However, don’t forget under both plans you are required to pay back your RRSP within 10-15 years after the withdrawal.

Don’t Forget to Name a Beneficiary

Make sure you name a beneficiary on all of your registered assets.  By naming your spouse or partner as beneficiary of your RRSP you will avoid unnecessary estate taxes.  Your spouse or partner is usually the only person you can transfer your RRSP assets to tax free.  (You can also transfer them to an infirm child, however other restrictions apply.)  Make sure you update and review your beneficiaries regularly.

Don’t Shun Professionals

Understanding the intricacies of tax, estate and retirement planning can be a daunting task, for more complicated matters always see an estate planner or tax specialist.  And, always use the expertise of a Certified Financial Planner when making all important financial decisions; including what investments to choose for your RRSP contribution. 

Have a great weekend,

Tracey

 

 

 

 

 

 

 

 

Sources:  Original article posted on Advisor.ca 01-15-14 by staff, BMO survey mentioned in original article.