In planning for your retirement there are many factors that you need to consider as part of your planning. Keeping in mind that every person’s circumstances are different. The following tax tips should be considered when developing your tax planning strategy.
RRSP
At the beginning of every year, maximize your Registered Retirement Savings Plan (RRSP) limit. If you have any contribution carry forward room, plan on catching up as soon as possible. An RRSP is a very flexible and tax-efficient way to save for retirement. Take advantage of the $2,000 over contribution ‘allowance’.
Contribute To a Tax-Free Savings Account
The Tax-Free Savings Account (TFSA) allows eligible residents of Canada to invest money in a TFSA and earn tax-free investment income or gains. Currently, you can contribute up to $5,500 per year. Unused contribution room can be carried forward indefinitely. You can withdraw from your TFSA at any time, and for any reason, without incurring tax. In addition, any amounts withdrawn can be re-contributed starting the next year.
Review Asset Allocation of Portfolio within an RRSP and within a non RRSP
Review your entire portfolio (RRSP and non-RRSP) from a tax perspective. Generally one would try to hold higher interest-paying investments inside an RRSP, and hold the more “tax-favoured” dividend or capital gains paying investments outside of your RRSP. Remember that you cannot take advantage of any losses in an RRSP. Keep in mind capital preservation becomes increasingly important.
Income Splitting
Take advantage of any income splitting strategies which may be available to you, including spousal RRSPs and splitting eligible pension income with your spouse. Consider transferring non-RRSP investment assets to a spouse by way of a spousal loan. This must be done with caution…attribution may apply.
Retirement Allowances
An amount paid as a retirement allowance may be eligible or partially eligible for a direct transfer to an RRSP with no immediate tax consequences. The eligible amount is $2,000 per year for number of years of service before 1996 plus $1,500 a year for number of years of service before 1989.
