Retirement rendez-vous - Chronicle N°14

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When is the best time to contribute to my RRSP? Before or after December 31st?

This is in fact a very good question and one that my clients often bring up during RRSP season. After all, the Canada Revenue Agency gives us an extra 60 days after the end of a calendar year to make an RRSP contribution, so why not take advantage of them?

Charles de Kovachich: Investment Advisor


Most of you are well aware you can contribute to your RRSP any time during the year. However, contributing after December 31st (during the first 60 days of the next calendar year) certainly offers some flexibility. When you make an RRSP contribution during that period, you may use your contribution as a deduction from your taxable income for the previous, current or future tax year. In comparison, when you contribute after those 60 days, you may only deduct that contribution for the current or a future tax year. Contributing after December 31st therefore affords great flexibility and can help optimize your RRSP deductions for greater tax savings.


Some clients choose to make an RRSP contribution in one lump sum while others invest smaller sums on a regular basis using the concept of systematic investing, by which the amount of their choosing is automatically debited from their bank account and contributed to their RRSP, on a schedule that they choose.


Systematic investment clearly offers many advantages. For one, it can increase your RRSP's potential to grow larger and faster. Making regular periodic contributions throughout the year allows you to benefit from the power of compounding over a longer period of time. What's compounding? Compounding occurs when the income generated from an investment is reinvested, thereby earning additional income. To take full advantage of the power of compounding, it's important to invest regularly, even if you can only afford to do so in small amounts.


At the end of the calendar year, it's easy to compare the total amount contributed to your RRSP with a systematic investment plan with your available RRSP contribution room, which you can find on the notice of assessment the Canada Revenue Agency sends out each year. This allows you to make a make a lump sum contribution if needed to bring your total contribution up to your maximum and ensure you are make the full use of your RRSP.  


Overall, systematic investment offers a simple and easy way to achieve your savings goals, take advantage of market opportunities, and reduce the adverse effects of volatility on your investment. So, don't wait till RRSP season to contribute. Get ahead of the game by contributing regularly and early - it can help you reach your retirement goals faster.



Charles de Kovachich

Investment Advisor

National Bank Financial

Organizations: Retirement chronicle National Bank

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