TFSAs are celebrated for their flexibility and tax-free withdrawals, while tax experts fawn over the have-your-cake-and-eat-it-too generosity of the FHSA.Kenneth Cheung/iStockPhoto / Getty Images
The registered retirement savings plan (RRSP) contribution deadline is just more than a week away, on March 2. Depending on who you ask, that date is greeted either with a gaping yawn or mild hysteria.
Compared to its registered savings account peers, the RRSP seems to inspire as much angst as it does enthusiasm. Tax-free savings accounts are celebrated for their flexibility and tax-free withdrawals, while tax experts fawn over the have-your-cake-and-eat-it-too generosity of the first-home savings account.
With RRSPs, it’s different. For one, there’s this deadline two months into a new year, encouraging action. The reward of a tax deduction is only weeks away, while the tax consequences of withdrawals are in a vague and distant future.
The mechanics are also poorly understood, according to a survey from Edward Jones Canada released this week. The study found 70 per cent of participants had negative feelings about RRSP contributions. Primary among them was confusion (40 per cent), while many were also anxious about maximizing opportunities (37 per cent) or whether they were contributing enough (36 per cent).
Meanwhile, only about half of the survey participants said they understood the value of the tax deductions, the tax implications of withdrawals, and what happens when an RRSP matures.
It’s a knowledge gap that could lead to short-term thinking and poor choices at this time of year, particularly as more clients are managing some investments on their own.
But even if the RRSP is getting less love these days, it’s still an integral part of retirement planning, especially as fewer people can rely on workplace pensions.
In fact, RRSPs are such a staple of retirement saving that many people have several of them, which can become a problem of its own, as Rudy Mezzetta reported this week.
While there’s still room to educate clients about RRSP basics, our coverage this year tries to reflect the strategies advisors may be deploying to solve specific problems and smooth out retirement income.
This week, Alison MacAlpine wrote about how RRSPs can be used to bridge the retirement income gap before clients start claiming CPP and OAS.
The plans are useful as an income source during the low-income years of early retirement, and early withdrawals can reduce the hit of minimum registered retirement income fund withdrawals when the plans are converted.
Next week, we’ll have stories about whether it makes sense to preserve RRSP contribution room as a hedge against out-of-the-ordinary high-income years, and how some advisors are getting more tactical with their use of spousal RRSPs. Stay tuned.
What’s the most important part of RRSP season for you? Let us know.
- Mark Burgess, Globe Advisor assistant editor
Must reads
In the dark: Canada’s investment industry regulator says it can’t tell financial advisors which of their clients may have been affected by a data breach last year because the information linking affected clients to advisors and dealers is incomplete or potentially dated. Rudy Mezzetta reports.
In the lead: Emerging markets have come roaring back to life, and some fund managers wager they can still outperform this year – and potentially longer – with tailwinds from China, Taiwan and South Korea. Shirley Won reports.
In the pilot’s seat: Rodney Anton, senior investment advisor with Evergreen Wealth Management at iA Private Wealth Inc. in Toronto, wanted to be a pilot. But after researching the education costs versus projected income, he veered toward financial services. He spoke with Brenda Bouw about the money mistake he made after landing his first job in the industry and why Ted Lasso would make a great advisor.
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