It's Your Money  

Top RRSP mistakes

The deadline for contributing to an RRSP account for the 2020 tax year is coming up in a few more weeks on March 1.

The RRSP program has been around since 1957, yet there are still many people who don’t fully understand it.

Further, there are plenty of Canadians who are still making the same RRSP mistakes each year. For this week’s column, I figured I’d discuss the top 10 RRSP mistakes and how to avoid them:

Over contributing

There are limits on how much you can put into an RRSP. If you don’t have a company pension, it’s 18% of what you earned in the previous year up to a maximum ($27,830 for 2021).

Those with a pension typically have significantly less room and an over contribution can occur quite easily.

Rushing to make a contribution

Many people wait until the last few days to put money in and don’t have the time to sit down with their advisor of financial planner to select the right investment.

If you’re rushed, there is nothing wrong with putting the money into your RRSP in cash and selecting the appropriate investments at a later date.

Doing a lump sum contribution each year

Aside from being rushed, you’d be better off contributing monthly instead of doing a lump sum before the deadline anyway.

Doing so allows the investments to be purchased at a variety of price points and typically reduces the risk.

Starting too late

The earlier people start squirrelling away money for retirement the better. I understand it can be hard for many to start saving early but even a small amount each month is better than nothing.

Being too conservative

I get it, nobody likes to lose money. But if your RRSP is conservatively invested and you have 10 or more years until retirement you are really missing out on the power of compounding growth. Put them in the market and stay invested through the volatile times.

Withdrawing from your RRSP early

Taking money out of your RRSP before retirement will not only trigger extra taxable income on top of the income you’ve already earned that year, but it will also have serious consequences to your retirement plans.

Forgetting to name your beneficiary

One of the many benefits of the RRSP program is to name a beneficiary and in certain situations, have the money bypass your estate and defer the taxes.

But all too often, people forget to name one, name the wrong person, or forget to change the beneficiary when their spouse passes away.

Holding RRSP accounts at multiple institutions

Doing so will almost always end up with the investor paying more fees than necessary and it also makes it harder to achieve the proper asset mix and diversification.

Holding the wrong investments

Proper planning dictates which types of investments should be held in an RRSP, TFSA or a Non-Registered account. All too often people end up holding the same investments in each type of account which can be cause unnecessary extra taxation.

Failing to revisit your plan

While I do suggest putting money into equities and not being tempted to pull it out, you still can’t ignore your plan entirely. Regularly reviewing and updating your financial plan that includes your RRSP and other accounts is important to reaching your goals.

While not everyone will have money to put into their RRSPs this year, those that can should really try to do so.

Just be sure to get proper advice from a qualified financial planning professional to help avoid the above mistakes!


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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]

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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