Now that the 2012 tax year is over and you have already received your refund or paid your balance owing, you may ask yourself when is a good time to contribute the RRSP account? Typically most people make their contributions in the first 60 days of the following year. So you might be waiting until late February or even the final day for the 2013 tax year; which is Monday March 3, 2014 deadline to make your contribution. However it may be to your advantage to make your contribution early, especially if you have extra cash now, or are in a high tax bracket, as the income earned on the RRSP would not be taxed in your personal account so it could grow more tax free. So the compounding effect of growth in your RRSP account could be used to your advantage.
Also if a person claims personal bankruptcy then their RRSP is exempt from execution or seizure by the Trustee if the RRSP contributions were made before 12 months immediately prior to the date of bankruptcy, so for creditor protection it may be wise to contribute to your RRSP.
Of course you would ask yourself how much should I contribute? The maximum amount which you could contribute to your RRSP is your contribution room, which is 18% of your last years earned income up to a maximum of $23,820 for 2013, plus any unused RRSP deduction limits from 1991. The unused RRSP limit is shown on Line (A) of your Notice of Assessment or can be obtained by contacting Canada Revenue Agency or online through my account.
You can over-contribute up to $2,000 to your RRSP without incurring penalties however It is important that you do not over-contribute more than the $2,000 to your RRSP as there as significant penalties for this of 1% per month for each month of over-contribution.
It’s always best to consult your financial advisor along with the assistance of your Toronto accountant to determine the amount and timing of RRSP as this may have a significant impact on your Canada Tax savings.
