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Your RRSP can get you where you’re going

Why Canadians walk away from a brilliant financial strategy every year is a mystery. There it is on your notice of assessment from the Canada Revenue Agency (CRA). It tells you exactly how much contribution room you have left over from previous years.

While people love to procrastinate, that inactivity can cost you dearly …

If you invest $10,000 in your RRSP at a 7 per cent return, the irresistible magic of compounding (Einstein was a fan!) will bear fruit worth over $75,000 in 30 years. What’s even more astounding is that’s without the tax deduction.

The comment heard most is that it’s very hard to find money to contribute to an RRSP. However, what few investors are aware of is that there are many strategies that can smooth the road to contributing and growing your assets.

Too many investors forget that tax planning is a fundamental part of your plan.

1.    Find out what your limit is

You need to know your contribution room. If you can’t find your Notice of Assessment, call CRA to get the information you need.

2.    Invest wisely

Too many people sit on funds in savings accounts. Sometimes people are sitting on investments outside of their RRSP that could be better used.

When you put your money to work in an RRSP, CRA reduces your tax liability. But don’t forget that you’re also maximizing asset growth within your RRSP – and there’s no immediate taxable income.

While you may have to realize some gains switching funds into an RRSP, the benefits could far outweigh the tax liability. You should, at the very least, investigate the possibilities.

3.    Invest – and do it regularly

By setting up an investment plan that regularly contributes to your RRSP, you can remove a lot of the hassle involved with contributing. Have the funds automatically removed from your chequing account and put to work immediately. Figure out the right dollar amount and how often you want to contribute.

4.    Think about someone else’s money working for you

There are many situations where borrowing and maximizing your RRSP contribution is smart. If you maximize your RRSP contribution today, you get instant tax savings and tax-deferred growth until retirement. Sometimes using someone else’s money (the bank’s) over a manageable period is the most intelligent way to accelerate your plan.

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Written by johnrondina

November 25, 2010 at 7:30 pm

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