It’s a new year, and in our industry, this time of year means it is time to prepare for the upcoming RRSP deadline. As the deadline approaches, many people want to contribute a little extra to maximize their tax savings.
Here are some frequently asked questions about the RRSP deadline:
Why do I need to contribute before the deadline?
The RRSP deadline is March 1, 2022. That means you have until then to contribute to your RRSP for the 2021 tax year. Meeting the contribution deadline allows you to maximize your tax savings when you file your tax return later in the year. Increasing tax savings and refunds are the main benefits of investing with an RRSP.
If you miss the deadline, it is not the end of the world. While your tax savings won’t benefit you this year, the remaining contribution room will roll over to next year. You can use that contribution room for your 2022 tax return.
How is my contribution room calculated?
You may contribute 18% of the income you earned and reported on your tax return the prior year (in this case 2020), or $27,830, whichever is less. If you have contribution room available from previous years, that room gets added to the 18% or $27,830.
Why is the deadline in March?
You might not know precisely how much employment income you’ve earned right at the end of the year. Fortunately, the Canadian Revenue Agency (CRA) gives you a little time to calculate your earnings so you can contribute to your RRSP accordingly. Therefore, the CRA lets you make contributions for the previous tax year in the first 60 days of the next year.
Do I need RRSP receipts to file my taxes?
We will provide you with RRSP contribution receipts as we approach tax time. You’ll get a receipt for the contributions you made between March 2 and December 31, 2021. You’ll also get a second receipt for any contributions you make between January 1 and March 1, 2022.
You don’t need the physical receipts to file your taxes. You can file your taxes if you know the exact amount you contributed. You can give us a call if you’re not exactly sure. However, when your receipts arrive, make sure you file them safely for future reference. If you face an audit in the future, you’ll need to produce them.
How much will my RRSP contribution impact my tax savings?
If you’re curious about how much your contribution will affect your tax amount owing or tax refund, you can use this handy RRSP Tax Savings calculator to give you an idea. Get in touch with your Fincor Financial Advisor If you’re looking to build a strategy to maximize your tax savings! We are happy to help you with strategic taxation planning for next year.
How can I avoid missing the deadline?
The easiest way to avoid missing the deadline is to set up automatic contributions. The money will automatically come from your bank account, at your chosen amount and date, so you don’t have to worry about it. You can also make deposits online through your bank’s bill payments function. Reach out to us if you need instructions to set that up.
Contributing consistently throughout the year will also increase the compound growth of your investment accounts. You won’t experience the same gain by contributing one large lump sum right before the deadline.
Have more questions?
The team at Fincor Financial Group is here to answer your questions, discuss your RRSP options, and help you create a taxation strategy. Please reach out if you want to open a new account, get in another contribution, or have more questions about the deadline.