It's that time of year again – time to start thinking about your RRSP contributions for the 2022 tax season!
The deadline for making RRSP contributions for the 2022 tax year is March 1st, 2023, so it's important to start planning now to ensure that you don't miss out on the opportunity to reduce your taxes or receive a refund.
One strategy that many people use when it comes to making RRSP contributions is to make their contributions in the first 60 days of the year. There are a few reasons why this can be a beneficial strategy:
- Tax planning: By making your RRSP contributions in the first 60 days of the year, you can use them to offset income from the previous year and reduce your overall tax burden and get a refund when you file your taxes.
- Tax-free growth: Any growth on your RRSP contributions is tax-free as long as the funds remain in the plan. By making your contributions early in the year, you give your money more time to grow tax-free.
- Compound growth: The earlier you make your RRSP contributions, the more time your money has to compound and potentially grow. This can lead to a larger return on your investment over the long term.
Here is an example of how making a first 60 days RRSP contribution can help you score a tax return:
Assume that you earned $50,000 in income in 2021 and had $6,000 of RRSP contribution room. If you made no RRSP contributions in 2021, you would owe income tax on the full $50,000 of income. However, if you made an RRSP contribution of $6,000 in the first 60 days of 2022, you could use that contribution to offset income from the previous year. In this case, your taxable income for 2021 would be reduced to $44,000 ($50,000 - $6,000), which would result in a lower tax bill.
Assuming a marginal tax rate of 25%, your RRSP contribution of $6,000 would save you $1,500 in taxes ($6,000 x 25%). If you had already paid $1,500 in taxes for the 2021 tax year, you would be entitled to a tax refund of $1,500. On the other hand, if you had not yet paid any taxes for the 2021 tax year, you would owe $0 in taxes and would receive a tax refund of the full $1,500.
In this example, making an RRSP contribution in the first 60 days of the year allowed you to reduce your tax bill and receive a tax refund of $1,500. This is just one example of how making a first 60 days RRSP contribution can be a beneficial tax planning strategy!
In Preparation for your Meeting:
If you're interested in making RRSP contributions for the 2022 tax year, we recommend booking a planning meeting as soon as possible. During this meeting, we will review your overall portfolio, discuss your RRSP contribution options, and prepare any respective transactions. To ensure that we can make the most informed recommendations, we will need some information from you, including:
- Notice of assessments from last year
- Total earned income from last year (including pay stubs and self-employment income information)
- Any statements of RRSPs you hold outside of Matte & Associates Financial Solutions
Don't wait – schedule your RRSP planning meeting today by following the link below!