It’s that time of the year again!
RRSP contribution deadlines are approaching (March 1, 2023!), and while there is no deadline for TFSAs (Tax Free Savings Accounts), the start of a new year is always a good time to take a look at your financial goals and put anything aside that you might like to invest or contribute over the course of the year.
Registered Retirement Savings Plan (RRSP)
Anything you contribute to your RRSP at this time can actually help offset your upcoming tax payments – in other words, it will be as though you’re being taxed on less income, subtracting the amount you’ve deposited into your RRSP.
Tax Free Savings Accounts (TFSAs)
Now, about TFSAs: Any unused contribution room is carried forward into the next year; however, a withdrawal in any given year does not make more room in your TFSA until the following calendar year.
For those who’ve contributed the maximum to their TFSAs each year, the most you can add in 2023 is $6,500. If you’ve never contributed to a TFSA you can actually deposit up to a total of $88,000 (you know, if you happen to have it lying around.)
You’ll end up paying a penalty for exceeding your personal limit, though, so it’s important to keep track of what goes in and what comes out. For any excess funds in the account, you’ll be charged 1% of your overcontribution amount each month it remains. So, for example, say you’ve over-contributed $1000 to your TFSA – you’ll be charged $10 for each month it remains in the account.
TFSAs do often tend to perplex people more than RRSPs (after all, the concept is far newer), but as long as you’re on top of your finances or speaking to a Financial Advisor to help guide you, these types of savings accounts are really for your benefit.
Protect Your Investments
As always, it’s important to protect the investments you have. Often when we get sick and are off work or have to pay for expensive treatments, we pull from our RRSPs or TFSAs to cover these costs. However, critical illness insurance, for example, allows you to pull from a benefit, so your hard-earned investments stay where they are and continue to earn you interest.
Review Your Financial Plans Each Year
These first few months of the year are always a good time to review your financial plans and ensure everything still meets your long- and short-term goals. For more investment insight, book a meeting with Steven today.