How you can get the most from your RRSP contributions

Key takeaways

There are several ways you can maximize your retirement savings by contributing to an RRSP.
If you have the opportunity, you should take advantage of employer matching with a group RRSP.

Building savings can be challenging – after all, there are plenty of fun things to spend money on. But the satisfaction of watching your savings grow will likely outlast the thrill of your latest online purchase.

To maximize your savings potential, you can add guaranteed investment certificates (GICs), mutual funds, segregated funds, stocks and bonds to your registered retirement savings plan (RRSP), tax-free savings account (TFSA) or a high interest savings account. To add segregated funds to your RRSP, you must be 16 years of age (18 in Quebec).

Here are a few options you can consider to make the most of your contributions.

Pay yourself first with a pre-authorized chequing contribution plan

A pre-authorized chequing (PAC) contribution plan helps you make regular, automatic contributions to your investments. It’s “paying yourself first” by treating regular saving like any re-occurring payment. This strategy is more effective because contributing more frequently gives you the advantage of dollar-cost averaging.

Dollar cost averaging means investing smaller amounts at regular intervals, rather than saving up to invest in 1 lump sum. It can help you avoid jumping into the market at peak times by purchasing more fund units when values are low and fewer fund units when values are high.

Talk to your advisor about adding an option that gradually increases the amount you contribute over time. It’s like giving your investments an annual raise, which can make a big difference to your savings over tim

Catch up on unused RRSP contribution room with an RRSP loan

An RRSP loan can help boost your savings by allowing you to catch up on RRSP contributions. By catching up on contributions using a loan, you’re giving your investments the most available time to grow. It helps you now and in the future because it:

Gives you more money earlier to grow your investment.
Potentially creates a larger nest egg down the road.
Reduces this year's tax bill through an income deduction equal to the amount of your allowable RRSP contribution.

Borrowing your RRSP contribution doesn’t have to be costly and you can use any tax refund to help pay down your RRSP loan. This means you’re benefitting from tax advantages right away.

Despite the advantages, RRSP loans aren’t right for everyone. While borrowing to invest has many potential benefits (investing an initial lump sum creates greater potential for compound-growth compared to making smaller regular investment purchases), leveraging also has potential risks (market volatility may result in poor investment returns and the possibility of owning more on the loan than the investments are worth).

RRSP loan proceeds can’t be used to fund TFSA contributions.

Contribute to a spousal RRSP

In a spousal RRSP, the higher income spouse makes an RRSP contribution and claims the tax deduction but the other spouse owns the plan and the money in it. Spousal RRSPs are generally used to equalize income during retirement, lowering the overall family tax rate.

This type of plan can be an advantage if one spouse earns a lot more income than the other. Any contributions made by the higher income spouse will reduce their individual RRSP contribution room for the year but won’t affect how much the lower income spouse can contribute to their individual RRSP.

If money is withdrawn within 3 years of contributing to the spousal RRSP, all or part of this amount will be taxed as income to the spouse who made the contribution.

Know your RRSP contribution limit and deadlines

One way to get the most from your RRSP contributions is to know your RRSP contribution limit and the deadline to contribute to your RRSP.

RRSP matching

Many employers offer a workplace RRSP program where you can contribute to an employer RRSP through payroll deduction.

Not only will you likely pay lower management fees compared to an individual RRSP, but you can also take advantage of employer matching. In this situation, the employer matches your contribution dollar for dollar, up to a certain amount or a certain percentage of your salary. It’s an easy way to top up your retirement savings with the help of your employer.

RRSP contribution and investing strategies

There’s more than 1 way to contribute to an RRSP. Considering different strategies can help accelerate your retirement saving.

What's next?

Now that you know more about getting the most from your RRSP contributions, you may choose to meet with an advisor, or if your workplace benefits are with Canada Life, contact a health and wealth consultant to:

Determine how an RRSP can help you achieve your savings goals.
Discover the way to contribute to your RRSP that works for your situation.
Find out more about borrowing to invest in an RRSP.
Learn more about RRSP employer matching.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.