Weekend RRSP and tax checkup

(Image courtesy of Ambro / FreeDigitalPhotos.net)

While taxes don’t have to be filed until April 30, I always like to do a preliminary run through with TurboTax (formerly QuickTax) before the end of February. When I did this a few days ago, I was glad I did because I discovered I had a bit more RRSP contribution room than I’d guesstimated, and I still had time to act before Monday’s March 3 RRSP deadline. In my case, I contribute regularly through a group RRSP at work, so I don’t normally regard the looming RRSP deadline with any trepidation. But if you’re in employer sponsored pensions, the pension adjustment (PA) may vary up and down. You really don’t know the precise RRSP room until you get your Notice of Assessment after filing the prior year’s taxes.

Don’t file your taxes until second week of April

By now, you should have received your T4 slips and most RRSP receipts, which is sufficient for the purpose of a preliminary run through. The online edition of TurboTax makes it easy to carry forward your information from the prior year, including RRSP contributions and unused room from prior years. If you also use an online discount broker, you can make an RRSP contribution easily online, just by transferring funds into your RRSP account: that should generate the needed RRSP receipt that you will use to back up your claim: you still have two months for that receipt to arrive and to finish inputting other data into your return—T5s, T3s and the like can be expected to dribble in until the end of March and first week of April, which is why I always hold off actually filing (via NETFILE) until the second week of April. If you have significant non-registered (taxable) investments, you may as well wait till then as well: filing adjustments after the fact would just be an unnecessary hassle. But do the preliminary work this weekend, just in case you miscalculated RRSP room and while you still have time to rectify the situation. I’m glad I did, because there was $1,400 of unexpected extra room. Remember too that there’s $2,000 worth of over-contribution leeway just because people do make these kinds of miscalculations or errors. I don’t deliberately over-contribute that much but if you’re in the opposite situation than I was—making too high rather than too low contributions—it’s nice to have a little flexibility. The trick really is to maximize your contributions and thereby minimize your taxes payable for the 2013 calendar year. Contribute too little and you’re giving the taxman more than he’s due; contribute too much and you’ll be subject to over-contribution penalties and the hassle of having to reverse them. By going through this exercise—call it a dry run—this weekend you should know to the penny your exact amount. If you’re under you have until Monday to rectify the situation with an additional contribution.

What is an RRSP?

How much should I contribute?

Where to invest my RRSP?

Need more help?

About Jonathan Chevreau

As MoneySense’s Investing-Editor-at-Large, he is also author of Findependence Day and co-author of Victory Lap Retirement. Reach him at [email protected], where he is the founder of Financial Independence Hub.

Linkedin Twitter Facebook Website