1. Start contributing today into your RRSP for the 2010 tax year rather than waiting until the last minute to contribute. If you can’t afford a lump sum contribution, start up a preauthorized contribution that comes directly out of your bank account on the same day that you get your paycheck. By investing regularly throughout the year instead of contributing a lump sum at the RRSP deadline, your money will have more of a chance to grow for you, and will significantly impact your returns over the long term.
2. If you think you will earn more money in future years, consider deferring your tax deductions until a later tax year. Just because you contribute in 2010, it doesn’t mean that you have to benefit from the tax deduction in 2010. Save it for a year that you expect your marginal tax rate to be much higher. For instance, full time students with part time jobs who want to start saving for retirement, will likely benefit from deferring their tax deductions.
3. Take advantage of a spousal RRSP if you expect your spouse’s income to be lower than yours when you reach retirement age. By splitting your income it will result in a lower tax bill in the future.
4. Consider borrowing to maximize your RRSP contribution room if you have done the appropriate number crunching and have determined that your tax refund would be sufficient to pay off all or most of your RRSP loan. You must be certain to use your tax refund to repay the loan, otherwise I would not advise taking out a loan.
5. Start contributing to an RRSP when you are young. The earlier you start, the less you will need to contribute due to the magic of compound interest. Many young people have a great deal of disposable income that will decrease significantly once they start a family, so if they start to pay themselves first when they have the extra money to invest, then when their budget tightens, even if they have to put their RRSP contributions on hold for a time, they will have money in the RRSP that will continue to grow.
6. Talk to your investment advisor today about your investment choices within your RRSP. Not only do you want to take advantage of the tax deduction that you get by contributing to an RRSP, you also want to put that money to work inside the plan through GICs, mutual funds, or other investment vehicles.
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