February 18, 2010, 5:00 am

2 Minutes Guide to Last Minute RRSP for 2009

by: The Financial Blogger    Category: RRSP
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All right, you have one week left and you haven’t made your RRSP contribution for 2009 yet. You need to make your RRSP contribution before the deadline: March 1, 2010. So you have 6 business days left, not much time to do it. Chances are that your financial advisor’s agenda is already full ;-). So here’s a 2 minute guide to last minute RRSP contributions.
 
 

How much to contribute to your RRSP?

Before meeting with your financial advisor, get your paperwork in order. Check the following items before making your RRSP contributions:

-         Your 2008 Notice of Assessment will tell you how much you can contribute (18% of your declared income minus any pension plan adjustment)

-         Calculate if you are already on a systematic investment plan to contribute to your RRSP

-         You are allowed to go $2,000 over your maximum RRSP contribution limit. However, since you won’t get a tax return for this extra 2K, don’t use it… it’s useless!

-         Consider your marginal tax rate (you can use the Free RRSP tax return calculator in this article). This will help you determine your tax return according to your RRSP contribution.
 
 

Which product to choose for your RRSP?

When meeting with your financial advisor, he will obviously direct you towards one product or another. Here’s how it should be done if you want to make a good investment decision for your RRSP contribution:
 
 
#1 Revise your investor profile: You should complete or review an investor profile questionnaire. This is the very first step to determine which investment solutions are the best for you.
 
 
#2 Ask for at least 2 options: In order to be able to compare and understand what you are investing in, ask your financial advisor for 2 investment options for your RRSP. Ask him to compare both and to tell you which one he prefers and why. By looking at comparables, you will be in a better position to know what you are doing. Don’t forget to ask him if he gets a bigger monetary compensation for one product or another. Hint: he has to tell you so, if he tries to deviate from your questions, remind him that he has to provide you with a clear answer (he doesn’t have to tell you how much he makes, but he must declare if he is in a position with a conflict of interest).
 
 
#3 Don’t forget to talk about fees: It is one thing to do a last minute RRSP contribution, it’s another to get creamed by high management fees or redemption fees. Ask how much the product costs and why those fees are applied to the specific investment products. It is important to know if there is a fee to open the account, to make transactions (buying or selling) or if its management fees are based on a percentage of the amount invested.
 
 
#4 Ask for your RRSP contribution receipt: While you won’t receive your official RRSP contribution slip on the spot, ask for a copy of the document you have signed and when you can expect to receive your RRSP contribution receipt by mail. You must include it in your Tax declaration in order to receive your tax return.
 
 
#5 Don’t forget your HBP reimbursement: Making an RRSP contribution isn’t automatically applied to the reimbursement of your Home Buyer’s Plan. So if you must reimburse a part of your RRSP withdrawal this year, remember that this amount won’t generate a tax return. So if you are already calculating your tax return, review your calculation according to the amount reimbursed.
 
 
That’s it! You are set to make your RRSP contribution within the next 5 minutes ;-). However, if you can’t get a hold of your financial advisor for a good 45 minutes, you are better off making a temporary RRSP contribution (just to get your RRSP slip) and revise your investment strategy in March. Make sure to book a second appointment in March right away though!
 
 

Last minute RRSP questions?

If you have last minute RRSP questions, please comment below and I’ll answer them as fast as I can !

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Comments

I wouldn’t say over-contributing $2,000 to your RRSP is always useless. Suppose you plan to contribute the maximum amount to your RRSP for the next X years. Instead, you could over-contribute $2,000 right now, but contribute $2,000 less for your last contribution in X years. In this case, you’ll be able to deduct all your contributions including the over-contribution. So everything is even in terms of deductions.

But…the $2,000 will compound in a tax-deferred manner for an additional X years. $2,000 may not be a huge sum of money and it will take many years for there to be a noticeable advantage – but the advantage is there nonetheless.

@ Jason,
since we have the TFSA, that 2K can also grow tax free elsewhere than within the RRSP. However, you better not miscalculated your RRSP contribution if you do so…

One thing to remember too is that any RRSP contributions made for the first 60 days of 2010 can also be counted as contributions for the 2009 tax year, and this may impact one’s decision on whether they want to invest more.

From what I can gather, you can also contribute more than 18% of your prior year’s income if you have contribution room built up.

Nice thread.

If my employment earnings were low during the last year, can I withdraw an amount from amy RRSP without paying high taxes, and refund the following year when my revenues will be higher (hopefully), and get then a tax return?

From what I can gather, if you withdraw any RRSPs,while your employment income is low, it is generally a good time to withdraw during this time, if that is what you are looking to do. Regardless, there will likely be a hold back of some sort and come tax season, if you are owed, you will be reimbursed.

If you know you’re salary is going to eventually increase, you can still contribute to RRSPs and get a refund provided you have contribution room left over to invest, which will sent to you by Revenue Canada in the mail.

Hope this helps

Yes. Do you lose your rights as a contribution on the amount that has been withdrawn from the RRSP?

Can I put my down payment into my RRSP, get the tax deduction, and then take it out to buy the house? Until when can I contribute in my RRSP to use the Home Buyer’s Plan?

Thanks!

technical question. It’s about the HBP.

My future wifie and I have each $40,000 and more in our RRSP and are in the highest tax bracket. We are planning to buy a house but still didn’t find the “one”, For next year contribution, what should we do in order to have our tax credit by contributing and put money aside for the cash down?

Thank you.

@Guylaine. Good question. I’m pretty positive that once you spend some of your RRSP money, you don’t get that contribution room back.

by: The Financial Blogger | February 19th, 2010 (6:24 pm)

@Guylaine, if you do so, you won’t be taxed too much but you will lose this rrsp contribution right forever (you can’t put back money that has been withdrawn from RRSP unless you do it to buy your first home or to go back to school under certain conditions).

@Sofia, yes you can do it. However, the money must be invested in a RRSP account for at least 90 days to qualify under the HBP.

@François, you can withdraw up to a maximum of 25K each under the HBP, the rest of the money invested in your RRSP will only serve for your retirement. If you prefer to get a bigger cash down (I suggest you get at least 20% to avoid CMHC fees), you can invest your money into a TFSA (tax free savings account).

[...] Financial Blogger presents 2 Minutes Guide to Last Minute RRSP for 2009 posted at The Financial Blogger, saying, “You need to make your RRSP contribution before the [...]

If 2010 is my last year of working, does that mean that 18% of my 2010 earned income is “wasted” as far as tax deduction is concerned since I could only use 18% of 2009 income?

by: The Financial Blogger | August 4th, 2010 (9:22 pm)

@Qian,

you can contribute to your RRSP in 2010 and deduct your contribution in your 2010 tax report. Nothing is wasted ;-)