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It's Your Money  

RRSPS in a pandemic year

We are five weeks away from the annual RRSP deadline.

Much like in years past, you can expect a few of my upcoming columns to focus on this program.

This year’s Registered Retirement Savings Plan season might be different though because like most thing in life, the pandemic is causing many people to make some changes.

To be clear, the financial rules around the program haven’t changed. Money invested into an RRSP creates a tax deduction at the time of contribution and money withdrawn from an RRSP in retirement is taxable.

What will change for some people this year is their decision to put money here versus a Tax-Free Savings Account (TFSA).

There has been much written over the years on RRSPs versus TFSAs and the pros and cons of investing in each. For most people, using a combination of the two makes sense.

Money invested in a TFSA does not attract a tax deduction when deposited, but money withdrawn is not taxable making it an easier place to pull money from if needed on a short term or emergency basis.

But does that same invest-in-both strategy work this year with everything going on?

For some, I’d say it still does.

If you have been earning a steady income and you don’t feel that your job is at risk in the COVID economy, you likely still want to put money into your RRSP as part of your long-term retirement savings.

In fact, many of those earning a good income right now are stuck at home and finding less ways to spend their money so this could be the year to load up on your RRSP more than normal if you have the contribution room.

You don’t need to use the full tax deduction for the 2020 tax year – instead you can carry some of it forward to save taxes in future years as well.

However, if you are one of many Canadians who have been financially affected this year you may want to reconsider your regular annual RRSP contributions.

While I would normally never advise people to skip a year, missing your regular contributions for one year won’t have too damaging an effect.

Instead, that money earmarked for your RRSPs might be better off in your TFSA this year.

You’ll miss out on the tax deduction and potentially even pay more in taxes overall, but the money will be more accessible if you need it for an emergency or to cover your bills if you are off work for awhile.

Low-income earners are almost always better off putting money into a TFSA since the tax credit from an RRSP contribution will be smaller.

If your finances are ok overall but you’re still worried about potential setbacks in the coming months, you could of course put some of your designated savings in each type of account to balance out the risk and benefits of each option.

Like most other money decisions, a proper financial plan can help answer what action plan is the right one for your unique situation. There is still plenty of time before the March 1 RRSP deadline to do your homework and make the right choice!

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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