Why Maximize Your Contributions?
For most Canadians, regularly contributing to RRSPs and TFSAs is the most effective retirement savings strategy. Maximizing your contributions each year can offer significant benefits, including:
- Generating long-term growth
- Deferring taxes until withdrawals (usually in retirement)
- Increasing the potential for compounded growth over time
A Simple Guide to Maximizing Your Contributions
At Regan Schiller & Associates, our financial advisors understand that it’s easy to fall off track when it comes to making contributions to your retirement plan. We help clients meet their saving and investment goals using a few simple strategies:
1. Find Out What You Can Contribute Each Year
A simple first step you can take before making your plan for contributions is to learn what the contribution limit is for your RRSPs and TFSAs. If you do this at the beginning of the year, you can plan to break the total up into regular contributions, making them more manageable. It’s also important not to overcontribute; if you do, you risk penalties that could outweigh the benefits of your contributions.
RRSPs
In 2021, the maximum contribution limit for RRSPs will be $27,830. However, your personal contribution limit is dependent on your income (equaling 18% of the income from your last tax year). You can also carry your contribution room from past years forward if you haven’t topped it up, which allows you to benefit more from years where you see a growth in your income. Take a look at your most recent Notice of Assessment from the Canada Revenue Agency (CRA) to determine your contribution limit, or get in touch with your financial advisor.
TFSAs
In 2021, the maximum contribution limit for TFSAs will be $6000. However, the annual contribution limit on your TFSAs accumulates year after year. That means that if you were at least 18 years old in 2009 and you haven’t contributed before, you can contribute up to $69,500 in 2020. If you have already contributed some money over the years, subtract that amount from the $69,500 total to find out your limit.
TFSAs can also be a great way to invest in your future without putting your money out of reach. They’re highly flexible, allowing you to take money out at any time without penalties.
2. Work Out What Makes Sense Financially
Financial planning is meant to prepare you for a confident future without sacrificing your current financial needs. Maxing out your contributions each year is beneficial, but it may not always be the best route in any given year. Take a look at your whole financial picture to find out what a reasonable contribution plan could look like. Are there areas where you could cut back spending to make larger contributions? Do you have a promotion coming up next year that could give your income a boost?
3. Set Up Regular Withdrawals
Any financial plan depends on, well… planning! Many people depend on others to remind them to make contributions to their savings, including friends and family members or financial advisors. Others might suddenly realize they forgot to contribute until the end of the year, and then it’s a rush to put together the funds for a contribution.
A more secure and stress-free way to contribute is to set up regular weekly or monthly payments. You can have the funds come directly out of your accounts like a regular bill payment, which means it will hardly be missed at all. It’s also possible to leave room for flexibility, such as when you need to skip a payment for an unexpected expense.
4. Check in With Your Financial Advisor Each Year
A financial advisor can help you manage a dynamic financial plan that changes and grows as you do. One of the essential steps in a financial plan is monitoring and adjusting, which helps you stay on track for future success, no matter what challenges or achievements come up. Be sure to check in with your advisor at least once a year (and more often, if possible) to check over your short- and long-term planning and make adjustments.
For more comprehensive information about retirement planning, head to our online resource on How to Create Your Retirement Plan.
Haven’t made your contributions for 2020? You still have plenty of time! Get in touch with Regan Schiller & Associates if you need information about your contribution room or need to work contributions into a more comprehensive financial plan.
This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Regan Schiller is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant.
Mutual funds and investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm). Additional investment products and brokerage services are offered through Investors Group Securities Inc. (in Québec, a firm in Financial Planning). Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund.
