The Canada RRSP contribution deadline is fast approaching. It’s a time when many people ask, what is the deadline for RRSP contributions in Canada, as they rush to make their final contributions for the tax year. But why is the RRSP deadline such a big deal?
Registered retirement savings plans (RRSPs) are government registered plans that allow Canadians to save for retirement in a tax-deferred way.
How to take advantage of RRSP contribution deadline
What this means is that they allow your investments to grow completely tax free as well as providing a tax break when you make the contributions. Your contributions are deducted from your income, for tax purposes, meaning that you pay less tax. For example, if you contributed $10,000 to your RRSPs, your income would be reduced by $10,000, meaning a tidy tax refund of typically several thousand dollars. You only pay tax when you withdraw money from your RRSPs.
This is why, at this time of year, so many Canadians wonder when is the last day for RRSP contributions? Canadians want to make as much of a contribution as they can before the RRSP contribution deadline, so that they get the biggest tax refund possible. Our article on RRSP contribution limits discusses how much you can contribute this year.
The deadline for RRSP contributions – 2023 tax year
When is the last day to contribute to RRSPs? While the Canadian tax year for personal taxes runs from January to December, the deadline for RRSP contribution for the 2023 tax year is February 29, 2024. The idea behind delaying the RRSP contribution deadline by a couple of months is to give taxpayers the chance to work out how much they’ve earned, so they know how much they can contribute.
So, while the last day to contribute to RRSPs is February 29 itself, you have until midnight to make a contribution. Some financial institutions may remain open later than usual on February 29, to meet this demand, so check with your bank/credit union so that you don’t miss the deadline for RRSP contributions for the 2023 tax year.
Why is it important to meet the deadline for RRSP contributions for 2023?
If you make the RRSP contribution date, you get to receive your tax refund within a few months, rather than having to wait over a year. If you intend to use your refund to invest in your RRSP, that money could have grown considerably by this time next year.
Remember though, that rushing to meet the Canada deadline for RRSP contributions for 2023 only makes sense if RRSPs are a good retirement savings plan for you. While RRSPs give a tax break when you contribute, you will be taxed on them when you start to withdraw, typically in retirement. Therefore, if your income in retirement is not much less than your current income, there will be little or no tax benefit to making this year’s RRSP contribution deadline. If your income is fairly low right now, some financial experts recommend that you invest in a TFSA instead of worrying about the RRSP deadline in 2024.
If you miss the deadline for RRSP contributions for the 2023 tax year, it’s not the end of the world. Any shortfall in your RRSP contribution limit will be carried forward to the next tax year.
What are your investment options if you make the RRSP contribution deadline?
You don’t need to simply put your cash into a savings account with RRSPs. There is a wide selection of investments you can choose from before the RRSP contribution deadline, including:
Guaranteed investment certificates (GICs)
These are similar to savings accounts, in that your invested capital is secure and you earn an agreed (or variable) rate of interest. However, your money is normally tied up for specific periods of time. They are typically very safe investments that currently deliver fairly low returns, but with almost zero risk.
Individual stocks
Listed on major stock exchanges – these are effectively part ownership (or shares) in a company. You could buy shares in large companies like Apple or smaller companies that might have more growth potential. These are riskier investments, as the value of shares can go down as well as up. Dividend-paying stocks provide income as well as potentially increasing in value.
Government and corporate bonds
These are debt securities (loans) issued by governments or companies. They typically pay regular interest amounts and return the original invested capital at the end of their term. They are usually considerably safer than stocks, but with lower returns. Government bonds are normally the safer of the two, with lower interest rates than corporate bonds.
Mutual funds
Collections of stocks and/or bonds that are actively managed by investment managers and provide immediate diversification. Mutual funds charge management fees which vary from fund to fund, but on average are just above 2% of the amount invested.
Exchange-traded funds (ETFs)
Collections of stocks and/or bonds, similar to mutual funds, but are traded on stock exchanges and not usually actively managed. For this reason, they come with considerably lower management fees than mutual funds.
Real estate investment trusts (REITs)
Publicly traded collections of real estate properties that deliver rental returns while lowering risk by investing in many properties.
It’s really important not to rush into an investment, just for the sake of making Canada’s RRSP deadline. If you don’t have time to properly research your investment options, simply opt for an RRSP investment that is liquid (easy to turn into cash), such as a short-term GIC or a cash savings account. Then, once you’ve had a chance to decide on the best investment option, you can switch the funds to that, within your RRSP, any time after the RRSP contribution deadline.
What if your RRSPs aren’t enough to provide a comfortable retirement?
For many Canadians, their RRSP savings are not enough to provide them with the retirement they want, even if they always made the RRSP contribution deadlines.
This could be because they just weren’t able to save enough during their working life. Or it could be that safe sources of income from their investments — such as corporate or government bonds — are delivering historically low returns that don’t come close to bringing them the income that retirees need.
If you’re a Canadian homeowner aged 55+, HomeEquity Bank’s CHIP Reverse Mortgage® allows you to borrow up to 55% of your home’s value in a tax-free loan. You can use the money to boost your retirement income, and the best part is that you don’t have to make any mortgage payments. You only pay back what you owe when you move out of your home or sell it.
You can choose to receive your tax-free money in a lump sum, or in monthly payments to supplement your regular income. Call us at 1-866-758-2447 today to find out how much you could borrow.
