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When it comes to last-minute RRSP planning—the contribution deadline is usually March 1—nothing surprises Michael Berton anymore. The Vancouver-based Certified Financial Planner has seen people dump cash in their accounts at the last second or invest in something unusual because they were pressed for time. He’s even seen people with 11 RRSPs, all at different financial institutions. “They literally opened an account on the last day,” he says.
While contributing at the last minute is frowned upon, there will always be people who procrastinate. The problem with waiting, though, is that people generally do dumb things or forget something crucial. So, if you haven’t made your contribution yet then consider these last minute tax tips to avoid any big mistakes.
Figure out if you need an RRSP
A lot of people panic at the last minute and open an RRSP because they think that’s what they should do. But for Canadians making less than about $40,000, investing in a tax-free savings account may make more sense.
RRSPs work best for people in higher tax brackets who can take advantage of the deduction now and, ideally, pay less tax when they withdraw. “Before doing anything, make sure it is tax effective to make the contribution,” says Armando Minicucci, a tax expert with Toronto’s Grant Thornton LLP.
It may also make more sense to pay off a high interest rate credit card balances before worrying about the RRSP deadline. In other words, think before you contribute.
READ MORE: Everything you need to know about RRSPs, TFSAs and RESPs
Invest in a GIC
It’s easy to get caught up in the moment of last minute investing and choose whatever fund your financial institution puts in front of you. But don’t make a hasty decision that can potentially affect your long-term gains.
To avoid this potential trap, Berton says it may make sense to buy a 30-day GIC for your RRSP. This way, your money is working for you while you figure out how you want to invest it. When those 30 days are up, you can put your contribution into an investment that makes sense.