With tax season just around the corner, it’s important to start thinking about ways to reduce your taxable income and save money. One strategy that can help you achieve both of these goals is by maximizing your Registered Retirement Savings Plan (RRSP) contributions. RRSPs are a popular savings vehicle in Canada as they provide tax-sheltered growth and the possibility of tax savings when you make contributions.
Here are some tips to help you make the most out of your RRSP contributions:
- Contribute early: The earlier you contribute to your RRSP, the more time your investments have to grow tax-sheltered. This means you can potentially earn more returns on your contributions.
- Maximize your contributions: Take full advantage of the contribution limit for the year, which is 18% of your earned income up to a maximum of $26,500 for 2020. If you have unused contribution room from previous years, you can also carry it forward and use it to contribute more.
- Consider a spousal RRSP: If you have a higher income than your spouse, contributing to a spousal RRSP can provide tax benefits for both of you. Your spouse can withdraw the funds in retirement, which can potentially result in lower taxes than if you had withdrawn the funds yourself