An RRSP is an excellent retirement savings tool. Still, you should be aware of the rules and other good practices that come with it. Here are 6 mistakes to avoid if you want to get the most from your plan.
Time is your best friend when saving for your retirement or for any other goal. Starting early and being consistent are the ingredients to easily grow your savings. What’s more, the performance achieved by regular contributions will help you during your accumulation phase. Contributing online by pre-authorized debit or through a set amount deducted from your pay is simple. See all the solutions we offer you to automate your contributions—a small effort for big rewards!
2. Exceeding your contribution limit
The amount you can contribute in a given year is indicated on your Revenue Canada Notice of Assessment. You may contribute up to 18% of your previous year’s qualifying income to your RRSP. You can also carry forward unused contribution room from previous years.
Be careful not to exceed your annually assigned limit, or you will have a penalty to pay of 1% per month on your excess contributions. Note that you can exceed this limit without penalties for a lifetime maximum of up to $2,000. If you’ve made the maximum contributions to your RRSP, consider investing in your Bâtirente TFSA, whose 2022 limit is again $6,000.
3. Spending your tax refund
There are many advantages to reinvesting your tax refund! Contributing to your TFSA or RRSP can bring you closer to achieving your dreams.
Invest in a Bâtirente TFSA to start off or increase your emergency fund, which helps you deal with unforeseen events. A good practice is to save the equivalent of three to six months’ worth of your usual expenses. It’s also a wise option if you’re hoping to save for a short- or medium-term project you want to make happen, like renovations or a major purchase. By investing your TFSA in one of the funds offered by Bâtirente, based on your risk tolerance, you’ll also be growing your investment!
When you contribute a portion of your tax refund to your RRSP, you’ll be able to benefit from a tax refund or tax break the year after, with your contribution being essential for decreasing your taxable income.
In other words, you’ll be able to reach your retirement goals faster by increasing your RRSP this way. Check your most recent federal notice of assessment to confirm whether you have any unused contribution room. Lastly, investing at the start of the year ensures you get the growth advantage offered from the performance of the Bâtirente fund or funds in which you invested.
4. Withdrawing before your retirement
There are consequences to pulling out money from your RRSP before you retire. In fact, you’ll need to pay tax on that amount since any sums withdrawn will be added to your annual income. Moreover, unlike a TFSA, you’ll lose your contribution room.
There are two exceptions, however: the Home Buyers’ Plan (HBP), which facilitates the purchase of a first property by allowing for a non-taxable withdrawal of up to $35,000 from your RRSP; and the Lifelong Learning Plan (LLP), which allows you to return to school by withdrawing up to $20,000, also non-taxable.
5. Not updating your plan
You should regularly assess your retirement goals—the age you intend to stop working and the desired annual income—and adjust as needed. As a Bâtirente member, you can access the On Target Retirement® tool in the MY ACCOUNT* secure section, which shows you, at a glance, the impact of your current financial decisions on your projected retirement income. Customized recommendations guide you in reaching your goal. By trying out different scenarios, you can immediately see the effect of a contribution increase, a change in planned retirement age, or even additional savings.
6. Reacting to market fluctuations
An RRSP is a long-term investment. While market fluctuations are a source of anxiety, it’s crucial to keep making regular contributions because time is on your side.
Consider the length of time you have to let your savings accumulate before you’ll need them. The more time you have to smooth out the ups and downs of the market, the more risk you may be willing to take. The best strategy is to invest according to your investor profile and to re-evaluate your investor profile every couple of years or as your life situation changes.
Your group retirement plan offers a variety of investments so you can choose an offering that corresponds to your specific investor profile. See the MY ACCOUNT secure section to determine your investor profile. It will help you make the best investment choices to suit your needs!
*Don’t have an account?
Follow these simple steps: click on MY ACCOUNT then Register and complete the requested information. You’ll need your group number (G900XXX) and your participant number, which you’ll find on your membership certificate, or your employee number. You’ll be able to create a user code and password, and you’ll get immediate online access to your account as well as to all our tools for ensuring your successful retirement.
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