Deadline for contributions

In order to be eligible for deductions for the 2009 tax year, your RRSP contribution must be made by midnight March 1, 2010.

Contribution limit

The contribution limit for 2009 is 18% of your 2008 earned income or $21,000. (whichever is less) MINUS any 2008 pension adjustment, PLUS any contribution room carried forward from previous years. Check your 2009 contribution limit on the Notice of Assessment from your 2008 Tax Return or call the Canada Revenue Agency TIPS line at 1-800-267-6999.

Carry forward of contribution room

If you have any unused contribution room, you may carry it over for an indefinite period of time. This unused room is indicated on your Notice of Assessment.

Age limit

You may contribute to your RRSP until the end of the year in which you turn 71. By the end of that year, all RRSP monies must be either withdrawn or converted into an annuity or a registered retirement income fund (RRIF). Also you may contribute to a spousal RRSP as long as you have contribution room, and your spouse is not older than 71.

Reinvest your refund

To get more retirement benefits from your RRSP, you can reinvest all of the refund back into your RRSP (assuming you still have contribution room available). Simply investing the 50% tax refund increases your RRSP by the same 50%. By investing the $500 refund, your $1000 RRSP investment increases to $1500. You can also reinvest your refund into a child’s RESP and get an additional 20% grant on that deposit.

Gross up

Consider borrowing additional funds to gross up your RRSP contributions (assuming you still have contribution room available). As an example, for your $1000 RRSP contribution, you can borrow an additional $1000 to increase your contribution to $2000. Your $1000. tax refund is used to immediately repay the loan so you pay little, if no interest. By “grossing up”, you get the maximum RRSP dollars working for each dollar you have to invest.

Catch up

“Catch up” loans are larger RRSP loans used to catch up all unused RRSP contribution room at once. This is an extension of the “top-up” strategy, but the loan is paid off over several years. If you had $20,000 in unused RRSP contribution room available and got a $20,000 catch-up loan, your tax refund would pay down $10,000 of the loan, the remaining $10,000 could be paid off over a few years.

Theresa Wever and the Money Concepts Team.

*Interest expenses on money borrowed to contribute to RRSPs is not deductible for tax purposes.
Borrowing to invest may be appropriate only for investors with higher risk tolerance. You should be fully aware of the risks and benefits associated with investment loans since losses as well as gains may be magnified. The value of your investment will vary and is not guaranteed, however, you must meet your loan and income tax obligations and repay your loan in full.
Tax refunds may vary according to your marginal tax rate.

Commissions, trailing commissions, management fee and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.