How healthy is your financial future?

This year 60 per cent of Canadians will be contributing to their Registered Retirement Savings Plan (“RRSP”) reports CIBC to save for a healthy financial future. What happened to the 40 per cent who aren’t making a contribution? They may need a prescription from a qualified professional, like a trained credit counsellor or their financial advisor, to nurse their finances back to health.

The deadline to contribute to a RRSP for a deduction for the 2011 taxation year is February 29, 2012. An RRSP is a tax-effective retirement savings account because the income earned inside the RRSP accumulates tax-free. In addition, contributions made to an RRSP are deductible in the year they are made.

Here’s Consolidated Credit’s prescription for ways you can contribute to an RRSP before the deadline or throughout the year:

• One of the quickest and simplest ways to contribute is by making a lump-sum cash deposit into your RRSP account providing you have money saved for this purpose.

• If you don’t have the cash, you may consider borrowing to contribute to your RRSP but the interest on the loan is not tax deductible. This isn’t a viable alternative if you are unable to repay the loan within 60 – 90 days and your refund doesn’t cover a significant portion of the amount owing on the loan.

• Budgeting regular, automatic transfers into your RRSP account as an expense like your mortgage or rent payment, it is the least painful method of contributing – a small amount every month can lead to a large amount at the end of the year.

Silvia Jacinto, Senior Tax Manager, Soberman LLP, Chartered Accountants offers the following advice on your 2011 RRSP contribution:

“If you are using automatic withdrawals from your bank account, you will want to determine how much you have already contributed so that you can determine if there is room for a top-up payment. Remember, if you over-contribute to your RRSP penalties may apply.

You may contribute to your own RRSP until the end of the year in which you turn 71.  You may contribute to a spousal RRSP until the end of the year in which he or she turns 71 provided that you have unused contribution room.”

Consult the Canada Revenue Agency or a certified financial advisor for more detailed information on Registered Retirement Savings Plans.

Photo © Anthony Rosenberg

Jeffrey Schwartz is the Executive Director of Consolidated Credit Counseling Services of Canada and President of the Credit Association of Greater Toronto (CAGT).  Consolidated Credit is a national non-profit credit counselling organization that teaches consumers about personal finance through web-based budget and debt analysis tools, financial literacy community outreach programs and in-person or telephone counselling.  CAGT is a non-profit association with a mission to provide a dynamic forum in which members can share information and expertise.