What you need to know about RRSP and TFSA contributions

by | Jan 24, 2023 | Financial Tips | 0 comments

RRSP and TFSA contributions, ACN Financial GroupYou may think it’s a little early to be thinking about tax-deferred benefits or tax-free savings, but tax season is just around the corner! In this article we’re going to give you tips for making the most out of your RRSP and TFSA contributions this year.

Retirement planning (RRSP)

Registered Retirement Savings Plans (RRSPs) are an effective way for most Canadians to save for retirement. If you’ve made RRSPs part of your financial plan, here are some ways to make the most of the benefits offered.

  • The deadline for RRSPs is February 29, 2024, for the 2023 tax year, but the earlier you contribute, the more you can take advantage of tax-deferred growth. This means investment growth that isn’t subject to taxes immediately, but only down the line. If you’re in a high tax bracket, this is especially important to help you benefit from the tax deduction. 
  • Another thing to consider is an RRSP loan. If you have excess contribution room, this would allow you to make a larger contribution during the first 60 days of the year. According to Manulife, you can then use your tax refund to repay some or all of your loan.
  • If you have a spouse or common-law partner, you can also contribute to a Spousal RRSP for a tax deduction. This is an income splitting strategy that can save your household taxes both before and after retirement
  • Did you receive a Christmas bonus this year? A helpful strategy for RRSP growth is to contribute raises, bonuses, and tax refunds. You can also consider the inflation rate and increase contributions by said amount. 

Tax Free Savings Account (TFSA)

If you are currently in a lower tax bracket, a Tax Free Savings Account (TFSA) may be the best fit for you. The benefit of this savings tool is that you don’t pay taxes on any interest or growth earned on your investment. This is great for short-term goals, because you can withdraw funds without tax penalty or taxation.

Since they’re not tax deductible, TFSAs have no yearly deadline, but the annual contribution amount adjusts every year. That being said, if you plan to withdraw, do so before the end of 2024. This way when you have added contribution room the following year, you can recontribute the amount withdrawn.

The TFSA contribution limit for 2024 is $7,000, up from $6,500. That means the total room for someone who has been eligible for the TFSA since its introduction in 2009 is $95,000.

To make the most of this savings vehicle, you need to understand common mistakes made with TFSAs. Manulife has a helpful article with some key mistakes to watch out for here.

If you’re unsure whether to contribute to an RRSP or TFSA, read this article. You may also find Manulife’s retirement planning checklist helpful.

As always, it is important to speak with an advisor to determine individual need and suitability before making investment decisions. If you’ve opened an account in the past, it is very important to know your available contribution room before making deposits to avoid overcontribution penalties.

Interested in making an RRSP or TFSA contribution? Contact us at ACN Financial Group so we can help guide you towards accomplishing your financial goals.