As the year-end approaches, it’s easy to focus on closing deals or wrapping up projects, but one area that often gets overlooked is planning around RRSPs and RRIFS – contributing, withdrawing, and over-contributing. Whether you’re a real estate investor juggling alternative investments or a medical professional with employer-matched RRSPs, there are smart strategies to consider before December 31st. In my latest quick-hit video, I highlight how contributing, withdrawing, or even overcontributing to RRSPs and RRIFs can create valuable tax-saving opportunities.
Video Transcript:
Why RRSPs and RRIFs matter at year-end
Often, people are not necessarily thinking of RRSPs and RRIFs as the year-end planning opportunities arise or as we get closer to December 31st.
I’m George Dube, Saving the world from tax one bow tie at a time®.
For many of my clients—who often invest in real estate or alternative investments—RRSPs and RRIFs aren’t a major focus. However, there are still valuable opportunities here.
Exploring Untapped RRSP opportunities
Maybe there have been RRSP contributions from years ago that are still accumulating, or perhaps a spouse—or yourself—received matching RRSP contributions from an employer. These scenarios present untapped opportunities. While many associate RRSP contributions with the later February or early March deadline, there’s also value in thinking about withdrawals as part of a year-end strategy.
Considering RRSP and RRIF withdrawals
Let’s think beyond contributions—maybe it’s time to withdraw from your RRSP or RRIF to use up some low tax bracket space. This can be especially beneficial for older individuals nearing the age where RRIFs become mandatory. In certain cases, it might even be better to draw funds from these accounts instead of pulling from investment assets in a corporation, which may offer better options for tax planning.
Long-term planning for RRSP and RRIF funds
Long-term planning is crucial when considering RRSPs and RRIFs. Upon the second spouse’s passing, RRSP and RRIF funds typically become fully taxable, which can result in a hefty tax bill. In contrast, investment assets within a corporation often allow for different tax strategies to mitigate the impact. Decreasing RRSPs or RRIFs now can provide more funds for your estate, next generation, or charities like a church or the Cancer Society.
An odd opportunity: Over-contributing to RRSPs
For those in the 71–72 age range, there may be an unusual opportunity to over-contribute to your RRSP. While this incurs a 1% penalty in December, the additional contribution room that appears in January can offset the penalty if it aligns with your long-term investment strategy. This quirky aspect of the tax rules could provide a surprising benefit for the right individual.
Stretching out the Home Buyer’s or Lifelong Learning Plan
If you’re considering using RRSP funds for the Home Buyer’s Plan or Lifelong Learning Plan, delaying withdrawals until early January could provide an advantage. Doing so pushes back the repayment terms by a full year, giving you additional time to meet requirements. While it may not seem significant now, it can have a meaningful impact down the road.
Stay ahead with strategic planning
Year-end is a valuable time to re-evaluate your RRSP and RRIF strategies. From maximizing contributions and withdrawals to planning for future generations, there are plenty of ways to make your funds work smarter for you.
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Check out the next video in the series.
I want to help you Do wonderful things®.
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Resources
For additional resources related to the year-end tax savings, see:
More questions?
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Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
