Introduction
Canadians have until March 3 to make RRSP contributions for the 2024 tax year. Missing this deadline means any contributions after March 3 can only be claimed in the 2025 tax year. RRSPs offer tax benefits by reducing taxable income, making them a key tool for retirement savings. Gerry Vittoratos, a tax specialist at UFile Canada, highlights that the immediate benefit of RRSP contributions is a lower tax bill.
How RRSPs Work
Contributions to RRSPs are tax-deductible and grow tax-free. For 2025, the contribution limit is 18% of the previous year’s earned income or $32,490, whichever is lower. Unused contribution room rolls over each year. Vittoratos advises checking your Notice of Assessment or CRA account to confirm your contribution limit.
Factors to Consider
Income level and savings goals are crucial when deciding to contribute to an RRSP. Those earning under $57,000 may benefit less due to lower tax brackets. RRSPs are ideal for long-term savings, while TFSAs are better for short-term goals. For instance, saving for retirement is best with an RRSP, but a car or vacation might be better suited for a TFSA.
RRSP vs. TFSA
While both offer tax benefits, RRSP contributions reduce taxable income, whereas TFSAs do not. However, TFSAs allow tax-free withdrawals, making them suitable for short-term savings. For 2025, the TFSA contribution limit is $7,000, up from $6,500 in 2024. TFSAs are advantageous for lower-income individuals and short-term needs.
Expert Advice
Vittoratos recommends prioritizing high-interest debt repayment over RRSP contributions. He advises against last-minute lump sums, favoring monthly contributions instead. Over-contributing by more than $2,000 incurs a 1% monthly penalty. Consistent saving, even if less than ideal, is better than not saving at all.
Conclusion
The RRSP deadline is a critical reminder to act promptly. Understanding the benefits and differences between RRSPs and TFSAs helps in making informed decisions tailored to individual financial goals. Consulting a financial advisor can provide personalized strategies, ensuring Canadians make the most of their savings options.
