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Secret Tax Trick: Shift Your RRSP & TFSA Contributions Before It’s Too Late!

Secret Tax Trick: As we approach autumn, investors can potentially benefit from tax-saving opportunities by transferring regular contributions to their tax-free savings account (TFSA) or boosting RRSP contributions and saving allowable TFSA space for another year.

Tax perks can be achieved by increasing RRSP contributions and saving TFSA space for another year, depending on expected income for 2024. Tax savings are achieved by lowering taxable income.

Lower Your Taxable Income Instantly with RRSP Contributions

RRSP Tax Refunds

  • Based on income taxed at a higher marginal rate if contribution wasn’t claimed.
  • Higher income results in larger tax savings.
  • Example: Under $40,000, 20% tax bracket, $1,200 refund on $6,000 contribution.
  • Over $45,000, 30% tax bracket, $1,800 refund on $6,000 contribution.

Beware: Too Much in Your RRSP Could Cost You Big in Taxes

RRSP Contributions and Tax Drawbacks

  • Lifetime limits on RRSP contributions are in place, but over-contribution can lead to significant tax implications.
  • Investment gains are taxed at the same marginal rates when withdrawn in retirement.
  • As investments grow, withdrawals may occur in a higher tax bracket, potentially reducing Old Age Security benefits.
  • If 2024 is a high-income year, consider boosting the contribution to lower the marginal rate.
  • If cash is short, borrow against the refund and repay it in spring.

RRSP or TFSA? Know When to Make the Switch for Maximum Benefit!

Diverting RRSP Contributions to TFSA

  • RRSP contributions can be tax-efficient if 2024 income is low and taxed at a lower rate.
  • TFSA is not tax deductible, but contributions and gains are never taxed when withdrawn.
  • RRSP contributions made in 2024 can be continued for future years with higher income and greater tax savings.
  • RRSP contributions can be made against 2024 income until March 2025, and deductions can be claimed in May 2025.
  • Consultation with an expert is recommended for tax strategy considerations.

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