Retirement Planning

by | Feb 4, 2022 | Articles

Get Ahead with These Six RRSP Considerations 

It is Registered Retirement Savings Plan (RRSP) season once again! Beyond the importance of contributing to the RRSP to grow funds for retirement, certain practices can also help to save tax or create a bigger nest egg for the future. Here are six considerations: 

Marketing In-Kind Contributions – Some investors may choose to move investments from non-registered accounts to fund their RRSP. If you are considering making in-kind RRSP contributions, be careful not to transfer investments that have declined in value. You will be deemed to have sold these investments at fair market value when transferring them to the RRSP, yet any capital loss will be denied. Instead, consider selling them on the open market and contribute cash to the RRSP so you can claim the loss. Be aware of the superficial loss rules if you plan on repurchasing them. 

Timing Your Deduction – With any RRSP contribution, you’re entitled to a tax deduction for the amount contributed so long as it is within the contribution limit. Keep in mind that you don’t have to claim the tax deduction in the year that the RRSP contribution is made. You may carry it forward if you expect income to be higher in future years such that you may be put in a higher tax bracket, potentially generating greater tax savings for a future year. 

Updating Beneficiary Designations It may be beneficial to review account beneficiaries on a periodic basis, especially in light of major life changes. For example, in the event of separation or divorce, be aware that named beneficiaries may not be revoked, depending on provincial laws. Therefore, the designation of an ex-spouse may still be in effect. 

Benefiting from a Spousal RRSP For couples in which one spouse will earn a high level of income in retirement while the other may have little retirement income, a spousal RRSP can potentially be a valuable income-splitting tool. However, don’t forget that the attribution rules generally apply to a spousal RRSP. If the higher-income spouse has made contributions to the spousal RRSP in the year or in the immediate two preceding years, and if funds are withdrawn from the plan, they may be taxed to the higher-income spouse, as opposed to the lower-income spousal RRSP owner. 

Engaging in a Meltdown Strategy There may be benefit in gradually drawing down RRSP funds as you approach retirement. This may be useful if an individual is currently in a lower tax bracket than they expect to be in future years. Others may seek to limit future sources of taxable income in order to minimize the possible clawback of income-tested government programs such as Old Age Security. One strategy may be to use RRSP withdrawals to fund Tax-Free Savings Account (TFSA) contributions. As the TFSA grows, there may be greater flexibility to receive tax-free income that can augment or replace Registered Retirement Income Fund (RRIF) withdrawals later. At death, TFSA funds can pass tax-free to heirs, unlike residual RRSP/RRIF funds that are subject to tax, potentially at high marginal tax rates. 

Seeking Other Options to Pay Down Debt Consider the implications of making taxable withdrawals from the RRSP to pay down short-term debt. You may be paying more tax on the RRSP withdrawal than you’ll save in interest costs. In addition, once you make a withdrawal from the RRSP, you won’t be able to get back the valuable contribution room. There may be other options, such as a TFSA where contribution room resets itself in the following calendar year. 

Seek assistance from tax professionals regarding your situation. 

RRSP Contribution Deadline: March 1, 2022, for the 2021 tax year. Contributions are limited to 18 percent of the previous year’s earned income, to a maximum of $27,830 (for the 2021 tax year).

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Dave Cooper, CFP®, CIM®
Senior Investment Advisor Portfolio Manager
[email protected]

Tyler Cockbain, BA, CFP®, CIM®
Senior Investment Advisor Portfolio Manager
[email protected]


Justin Nekechuk, B. Ed
Associate Investment Advisor
[email protected]

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