Making your 2020 RRSP contribution

Coming up with a retirement plan

It’s a new year and contributing to your RRSP is often top of mind. This year, the deadline to contribute to your RRSP for the 2020 tax year is March 1, 2021. Making regular RRSP contributions offers both short and long term benefits, so if you haven’t made a contribution for the 2020 tax year it’s probably in your best interest to do so.

Here are some of the benefits of contributing to your RRSP.

You’re Saving for your Retirement

Money put into your RRSP is generally not touched until retirement (unless you take advantage of certain programs such as the First-Time Home Buyer Program), so you’re contributing to your nest egg every time you make an RRSP contribution. This means that, the earlier you start, the longer your money has to grow.

There’s a common saying used when discussing retirement saving: “when it comes to retirement the best time to plant a tree was yesterday, but the next best time is today”. So, if you haven’t started saving for retirement yet there’s no time like the present.  

You’ll Reduce your Taxes Owed

An RRSP is what’s known as a tax-deferred investment. Any contributions you make today are deducted from the income you claim on your taxes, reducing the amount you owe. Making regular contributions during your peak earning years will lower your tax bill while you’re working.

This is because when you withdraw funds from an RRSP, they are taxed as income. Since you’ll no longer be earning a salary in retirement you are likely to be in a lower tax bracket when you are withdrawing the funds in your RRSP, reducing the amount of tax you will pay on your retirement income.

It’s important not to think of your tax refund as “free money”, but rather as an opportunity to invest into your RRSP, your TFSA or to pay down some debt. This way you’re taking full advantage of the benefits of contributing to your RRSP.

Learn more about RRSPs and your contribution options.