Maximizing your RRSP Contribution

My best advice with RRSPs (Registered Retirement Savings Plan) would be to start early. The sooner the better! With the magic of compounding interest, investing your money one year a head of schedule can make an insane difference (refer to my earlier blog, "Time, Return, & Amount"). The beauty of RRSPs is that they are tax deductible.

For example:

• Person A has an annual income of $50,000 -> pay income tax on $50,000.
  
• Person B has an annual income of $50,000 but contributes $9000 to his/her RRSP -> pay income tax on $41,000

Your tax refund can be used to generate more retirement savings. So max your contributions! And no, this means you can't put $1,000,000 every year into your RRSP. The government sets a maximum every year on the amount you are allowed to contribute. At the present time, the limit is 18% of your previous year's earned income up to a maximum of 16,500 for 2005 & $18,000 for 2006.

If you think it's too late to start maximizing your RRSP contribution, then think again. Whatever amount you do not use (from your allowable RRSP contribution) will be carried over to the next year.