If you haven’t made your maximum allowable RRSP contributions for previous years, do your best to play catch-up this year. You’ll get an immediate tax deduction for your entire contribution and you’ll have more money working for you under the tax deferral of your RRSP.
Borrowing can be a smart way to maximize your 2003 RRSP contribution, or to catch up on your past contributions. The key is to get the lowest possible loan rate, which can make the cost of borrowing less than your potential investment returns, if you keep the loan term short. You can reduce the payback period by using your RRSP tax refund to repay the loan.
If you have qualifying non-registered investments you can choose to contribute them to your RRSP. This is known as an ‘in-kind’ contribution and allows you to claim the RRSP tax deduction based on the value of the assets on the day of transfer. Be aware, however, that by transferring capital assets that have appreciated in value, you will trigger taxes on realized capital gains. Alternatively, you will not be able to claim a capital loss for tax purposes on transferred capital assets with a market value less than the purchase price at the time of the transfer. You could also face taxes on accrued interest if you contribute a fixed-income security to your RRSP between payment dates for interest.
This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your financial advisor.