# RRSP timing questions



## Franko (Mar 31, 2012)

Hey there,

I am a fairly new investor who has also recently graduated. I'm now tackling the daunting task of sorting out my finances for the near and long term. I had a question regarding RRSP contributions and the timing of it:

I currently have $10k of unused room carried forward from previous years, and as I'm currently working, by the end of 2012, I'll have earned roughly another $11k in RRSP contribution room (total = 21k by end of 2012). I want to start contributing now, but I'm just wondering if I can put in a full 21k worth while I'm still working this year, or do I need to wait until 2013 to contribute the 11k room I earned from working in 2012? 

Can someone please explain this to me? Also, if you also have any other general tips or suggestions related to RRSP contributing, I would appreciate it!

Thanks in advance,

Frank


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## doctrine (Sep 30, 2011)

I always wait until I receive my tax return from CRA with my confirmed contribution room. If you contribute early, you could be subject to penalties if you over contribute. So, I made my RRSP contributions for my income earned in 2011 a few months ago.


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## GoldStone (Mar 6, 2011)

No, you cannot contribute 21K now.

Take a look at your Notice of Assessment for Tax Year 2011. Find these two values:

RRSP deduction limit for 2012 (A)
Unused RRSP contributions available for 2012 (B)

This is what you can contribute before end of the year:

(A) - (B) + 2K

I added 2K because you are allowed to over-contribute 2K without penalty.

Contribution room that you earn in 2012 opens up on Jan 1, 2013. If you choose to over-contribute 2K now, you can contribute (11K - 2K = 9K) in January. That's assuming that you estimated 11K room correctly.


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## the-royal-mail (Dec 11, 2009)

I don't understand the rush to do this, possibly at the risk of incurring penalties. Why the huge rush?

1. do you have any debts?
2. do you have any emergency funds set up?
3. has your TFSA been filled?
4. do you know anything about investing?
5. do you have the money for getting yourself started in life, new car, furniture, first month of rent etc?


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## eulogy (Oct 29, 2011)

I agree. What's the rush?

If you have debt, pay it off.
If you don't have an emergency fund, make one.
If you haven't maxed out your TFSA, do it.

You're a recent graduate it. You're probably loaded up with all those student tax credits and such.


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## Eclectic12 (Oct 20, 2010)

+1 on what's the rush?

Bear in mind the penalty for over-contribution is usually 1% *per month* until a withdrawal or new contribution room fixes the issue. Then too, since it is a registered account, just the paperwork for a withdrawal is a pain. So it is worthwhile to be sure you are within the limits.

Also - if you are just graduated and starting out, it may work to your benefit to focus on the TFSA and save the RRSP contribution room for later when your salary/taxes/RRSP refund is higher. There's a bunch of threads here on CFM that discuss when this make sense and when it doesn't.


Cheers


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## getchanceandluck (Jul 5, 2012)

Eclectic12 said:


> +1 on what's the rush?
> 
> Bear in mind the penalty for over-contribution is usually 1% *per month* until a withdrawal or new contribution room fixes the issue. Then too, since it is a registered account, just the paperwork for a withdrawal is a pain. So it is worthwhile to be sure you are within the limits.
> 
> ...


Agreed. Also keep in mind that gains made in a TFSA are completely tax free (except for with-holding tax). A TFSA and getting rid of high-interest debt (ie debt with an interest rate higher than what you could earn elsewhere with savings/investment) should be the priorities.


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## Compounding1 (May 13, 2012)

Another thing to consider is the income you're making right now compared to what you think you'll be making in the future. If you think you'll be making more in the future than you are now (given that you just graduated) it would make more sense to worry about capping a TFSA than a RRSP. Since you wont get as much now in 'free money' from the government as you would a few years down the line when you're in a higher tax bracket.

Hope this helps.

Oh and +1 on the debt first.


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## Eclectic12 (Oct 20, 2010)

^^^^

Generally, I agree but I'm leery of referring to the RRSP tax refund as 'free money'. 

It is a tax deferral - taxes will still need to be paid when it is withdrawn from the RRSP. The biggest advantage is putting the tax refund to work now instead of paying the gov't. A possible second advantage is if one's tax situation is lower when the money is withdrawn.

Someone giving a money gift - that is free money.


Cheers


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## Andre (Sep 13, 2012)

As other people have already said, wait until you have your Notice of Assessment in hand before you make the contributions. You don't want to risk overcontributing.

I don't agree with everyone jumping all over the debt bandwagon though. I think some of you guys are missing the point here - you have a recent graduate who's thinking about putting away some savings. Saving money is a learned habit, and starting with RRSP contributions is as good a place as any to start. When you discourage that, you're feeding into the paralysis by analysis mindset that causes young people to put off investing.

Franko, I say go ahead and put money into your RRSP, but don't dump all your money into it at once. Get used to making contributions every couple of weeks when you get paid. Find some investments you're comfortable with, set up your allocation, and when you're confident in your choices, go ahead and drop a few K on that bad boy.



Franko said:


> I currently have $10k of unused room carried forward from previous years, and as I'm currently working, by the end of 2012, I'll have earned roughly another $11k in RRSP contribution room (total = 21k by end of 2012). I want to start contributing now, but I'm just wondering if I can put in a full 21k worth while I'm still working this year, or do I need to wait until 2013 to contribute the 11k room I earned from working in 2012?
> 
> Can someone please explain this to me?
> Frank


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## Eclectic12 (Oct 20, 2010)

Andre said:


> ... I don't agree with everyone jumping all over the debt bandwagon though. I think some of you guys are missing the point here - you have a recent graduate who's thinking about putting away some savings. Saving money is a learned habit, and starting with RRSP contributions is as good a place as any to start. When you discourage that, you're feeding into the paralysis by analysis mindset that causes young people to put off investing. ...


It depends on if there is debt, how much debt and for what interest rate. Paying 8% on debt to earn 2% in an RRSP - does not strike me as useful. Or worse - when the individual does not know a lot about investing, losing 15% in the RRSP. 

BTW - most people I've met who have learned to save usually has addressed debt at the same time or before going big time into saving. It's part of the financial plan.


I'm also curious about the "discourage saving = analysis paralysis that puts off investing". The way I read the posts, priorities were recommended so there's no analysis paralysis that I can see.


Cheers


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## peterk (May 16, 2010)

Question, since I've never contributed to RRSPs: I am only allowed to deposit (at any time) the limit stated on my previous tax assessment?
If I want to deposit more (throughout the year as I make money and my limit increases) does this HAVE to be done through direct payroll transfers?


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## Sampson (Apr 3, 2009)

The value on the NOA is the TOTAL amount for the entire year. If you have automatic payroll contributions, make sure you consider these and the sum total by year end before putting additional monies into your RRSP. If you put the NOA value in, AND make auto contributions you will probably risk overcontributing and exposing yourself to penalties from the CRA.


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## peterk (May 16, 2010)

Reading this thread over I would say that the OP's question hasn't been answered, but some other good advice was given along the way. Since I'm in the exact same situation. I'd like to clarify my own (and perhaps the OPs) questions. 

Situation: Just graduated University. Starting job in late 2012. I have 25000 RRSP deduction limit as indicated on my NOA (A) and have never made a contribution in my life, 0 (B) So right now I'd be able to contribute 25000+2000 if I had the money.

Now, ignoring the built up contribution room, when I start working, I assume I will be able to make payroll deductions. If I specify to the employer to take the max amount they will do that and know how to calculate it based on my income. IF though, I choose not to use payroll deductions, will I be able to add money to an RRSP account throughout the year as I'm earning money?

Basically the question is: does the contribution room increase in a rolling manner, along with your earnings throughout the year. Or MUST you wait until the year is up before you "have" the contribution room?


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## GoldStone (Mar 6, 2011)

peterk said:


> Reading this thread over I would say that the OP's question hasn't been answered


Not true. See post #3 on page 1.



peterk said:


> Basically the question is: does the contribution room increase in a rolling manner, along with your earnings throughout the year.


No



peterk said:


> Or MUST you wait until the year is up before you "have" the contribution room?


Yes


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## peterk (May 16, 2010)

ah yes, thanks Goldstone. The exception being payroll deductions filed with the proper CRA paperwork?


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## GoldStone (Mar 6, 2011)

peterk said:


> The exception being payroll deductions filed with the proper CRA paperwork?


No. CRA paperwork reduces the tax deducted at source. It doesn't increase your RRSP contribution room. Payroll deductions count towards RRSP contribution room shown on the Notice of Assessment.

What I said applied to RRSPs only. If you participate in DB/DC pension plan at work, the rules are more complicated.


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## peterk (May 16, 2010)

Oh so if I max out my previous contribution room immediately at the start of 2013, and want to get my employer to make regular tax deductions throughout the year, I still can't deposit any funds into a RRSP during 2013? and have to save up the correct amount as prescribed by the tax deduction at source paperwork in an unregistered account, and then transfer those funds to an RRSP at the start of 2014?
Sorry if these are simplistic questions, I've never had a full time job before


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## Eclectic12 (Oct 20, 2010)

peterk said:


> Oh so if I max out my previous contribution room immediately at the start of 2013, and want to get my employer to make regular tax deductions throughout the year, I still can't deposit any funds into a RRSP during 2013? ...


Mostly ... if you want to stay within the RRSP contribution limits, yes. There is the allowance of going over RRSP contribution room by $2K without a penalty, so you could choose to contribute an additional $2K in 2013.




peterk said:


> ... and have to save up the correct amount as prescribed by the tax deduction at source paperwork in an unregistered account, and then transfer those funds to an RRSP at the start of 2014?


There is no requirement for this - the reduction of taxes withheld based on the RRSP contribution room is simply paying the anticipated tax refund in 2013 instead of waiting for the 2013 tax return to be filed in 2014. What you use the tax refund for is up to you. If you decide you want to save it for your next RRSP contribution in 2014 - then you'll have to put it somewhere taxable (or TFSA if you have enough contribution room) until 2014, when more RRSP contribution room is available.


Bear in mind that CRA and your employer are reducing the taxes withheld based on the information they have plus what they anticipate for 2013. If there is anything out of the ordinary that increases the 2013 income - it is possible that when you file your 2013 tax return in 2014 that you end up *owing* taxes. An example would be if an investment was sold for a large capital gain. So it's a good idea to check late in 2013 to confirm what the likely tax situation is while there is time to plan for any exceptional situations.


Cheers


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## GoldStone (Mar 6, 2011)

peterk said:


> Oh so if I max out my previous contribution room immediately at the start of 2013, and want to get my employer to make regular tax deductions throughout the year, I still can't deposit any funds into a RRSP during 2013?


Yes, you can. Remember, you get new room as of midnight 01/01/2013. This new room is in addition to the previous contribution room that you carry over from 2012.

The new room is based on your earned income in 2012. You can easily estimate it using your last pay stub in 2012. Multiply gross 2012 payments (salary + bonuses) by 18%. Apply annual maximum ($23,820 for 2013) if needed. That's your estimated new room that you acquire on Jan 1st.

If you have other sources of income in addition to employment income, you need to include them in the calculation. See here:
http://www.taxtips.ca/rrsp/rrspcontributionlimits.htm


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## cjk2 (Sep 19, 2012)

As a recent graduate, I'll try to be more in-depth and offer some of my insight. But first I have to say, I am VERY new to investing (i.e. only started really learning it in the last few months) so please, please someone correct me if any of this is bad advice! 

Anyways, I graduated last year--with a load of student debt. I had no experience in finance and barely knew what an RRSP or TFSA was. My first impulse (apart from debt repayment) was also to invest in an RRSP (because I always hear people say to start saving for retirement early). However, after reading up a bit more I realized this was not the smartest thing to do. So here's what I did:

1) My #1 priority was paying off debt. As a student I lived very frugally; after starting working I definitely increased my spending, but I still put the majority of each paycheque towards reducing my student loan. I know some people say that you should invest the money instead since you get higher returns than the interest on the student loan. Well, this is NOT guaranteed (especially if you don't know much about investing and are prone to making beginner mistakes). Meanwhile, saving on the interest you'll pay on the loan IS guaranteed. Plus it will make you feel better--being tens of thousands of dollars in debt is _not_ a good feeling.

2) After my loans were all paid off, I immediately opened a TFSA. It doesn't sound like you've put any money in a TFSA yet--this is absolutely what you should be doing first, before thinking about RRSPs. The main benefit of RRSPs is being able to defer taxes on your income. As a new grad, this most likely does NOT apply to you. All that tuition you paid in the past few years will finally come in handy now--in fact, I did not have to pay any income tax last year because of all the tuition credits carried forward. On top of that, any interest you pay on your student loan (hopefully not much if you get to it straight away!) is tax-deductible as well. In fact, I still have a significant chunk of tuition credits left to use this year. Therefore, there is zero advantage to an RRSP but plenty when it comes to a TFSA. Extra bonus of TFSA: you can withdraw money from it without penalty and gain back the contribution room (not so with RRSPs). It's possible that you might need money in your first year out of school (e.g. for a car) so it's a good idea to keep the money readily available.

#1 and #2 will probably keep you going for awhile, since I'm guessing you have $20k in contribution room to your TFSA. I am still currently in this stage--i.e. adding money to my TFSA. If you're lucky and have low or no student debt, it'll be much faster for you.

*Edit:* Thanks to Sampson's helpful advice about RRSPs, I'm revising #3 and #4 so ignore what I wrote previously--you should max out your RRSP _but do NOT claim it on your tax return_, then start on a non-registered account. Only claim your RRSP contributions the year after you've used up your tuition credits/student loan interest tax credits etc.

3) Now my current situation is, I am projected to max out my TFSA before the end of the year. However, I am NOT planning on making any RRSP contributions until 2013--instead, I am going to open a non-registered investment account (no tax benefits). [*Edit:* nevermind, I definitely will open my RRSP first! I'll just save the deductions for next year. ] Why? Because as mentioned before, I still have lots of tuition tax credits that can be applied to my income this year. On top of that, many grads will see their salary increase as time goes on. Therefore, it makes more sense to save the RRSP contribution room for next year, when my taxable income will be a great deal higher than this year (mostly due to the fact that I won't have any more tuition credits left, sadly).

4) So next year, what I'll do is: add $5k more into my TFSA (or $5500? I don't know when they're going to increase the TFSA contribution due to inflation), then after that, max out my RRSP (and claim all my contributions for the 2013 year). Once that's maxed out, I'll go back to the non-registered.


In summary: 1) debt, 2) TFSA, 3) RRSP--but do not claim it, 4) non-registered account. Claim RRSP only after you've used up your other tax credits (tuition, student loan interest).

Hope that helps a bit.  (And everyone else feel free to chime in if this is a bad strategy...)


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## cjk2 (Sep 19, 2012)

Andre said:


> I don't agree with everyone jumping all over the debt bandwagon though. I think some of you guys are missing the point here - you have a recent graduate who's thinking about putting away some savings. Saving money is a learned habit, and starting with RRSP contributions is as good a place as any to start. When you discourage that, you're feeding into the paralysis by analysis mindset that causes young people to put off investing.


Just to comment on this: I don't think paying down debt is "discouraging investing". Clearly the OP is already aware of the importance of investing and is committed to doing so. Hopefully he lived on a reasonable budget as a student and will continue to do so after starting his job (though of course feel free to enjoy some of your new money a bit--just don't overdo it! ) I would even argue that paying down debt is a form of "investing", because you are losing less money towards interest. I see so many people who still have student loans decades after graduation, some just making the bare minimum payments, and it baffles me that they don't seem to mind at all that a portion of their money just goes towards the interest! Obviously student loans have much lower interest rates compared to other types of debt, but interest is interest...aka money going into the pockets of financial institutions instead of you.

For me, it was a very natural and easy process to go from debt repayments to investing. For the first year or so, I would put a large chunk of each paycheque towards my student loans. After this was done with, I basically put that same chunk towards my TFSA instead. No change in lifestyle required, except that I felt great about the fact that my money was finally working for me and my bank balance was growing. Obviously there was a bit of a learning curve, but the debt repayment time period actually gave me more time to read up on investing so I didn't just jump in blindly (well, at least not totally blindly...I'm still not sure I'm doing all the right things when it comes to investing!).


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## cjk2 (Sep 19, 2012)

Sorry for all the continuous posts, but forgot to add: if you do have tuition credits make sure to let your employer know so you don't get deducted income tax on your paycheque. I thought I had done this on my form last year, but somehow it didn't work because my employer still took it off my pay--really frustrating because it's a huge chunk of pay that could be used to pay off the debt sooner! You do get it all back in April the next year, but it means you've been paying more interest on the student loans than you have to. That nice big cheque in the mail certainly felt good though...well, at least for a moment. Because then it all went to the NSLSC (National Student Loans Service Centre). Sigh...oh well, next year's cheque will be more rewarding.  (But probably smaller...)



getchanceandluck said:


> Agreed. Also keep in mind that gains made in a TFSA are completely tax free (except for with-holding tax). A TFSA and getting rid of high-interest debt (ie debt with an interest rate higher than what you could earn elsewhere with savings/investment) should be the priorities.


Sorry to go off-topic a bit, but this part is new to me! I have been under the impression that TFSAs are not taxed at all. After reading your post I quickly looked it up and it sounds like there is indeed a withholding tax for foreign investments, but not Canadian ones. Is that right?

Well, that kind of sucks. A significant portion of my portfolio right now is invested in US and International equities. So this means I _will_ actually be taxed on any gains? Does it make any difference if these are held through index funds (I haven't gotten to the stage of buying direct shares yet). Also, I do plan on holding these investments long-term, so I won't be taxed on anything until I sell them, right?

Doesn't really change my current strategy (since the TFSA is still subject to way less tax than other accounts) but it still kinda bites.  And not sure if I got this right, but it means that once I open up my RRSP, it would be better to put US and other foreign investments there, while keeping the Canadian investments in my TFSA/non-registered...???


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## cjk2 (Sep 19, 2012)

Ok, 1 last post: (I would've edited my previous posts but apparently it needs to be approved first, so I have no choice but to keep adding posts! Maybe I should've organized my thoughts better...)

Even if you have zero debt to pay off, and have already maxed out your TFSA...do NOT contribute to your RRSP in the first year. (*Edit:* Actually, as Sampson pointed out below, you SHOULD contribute to your RRSP, just don't claim it!) Reason being that you will only be working part of the year so your salary will be much less than next year, even without any salary increases. E.g. I started working in June after graduation, giving me just 6.5 months of work in 2011. Thus my 2011 income is only half of this year's income (actually less, because I did get a bit of a pay increase later on and also started working more in 2012). If you take a bit of a break after school and before work, the difference will be even greater.

Only exception is _maybe_ if you have a huge RRSP limit (I guess if you worked a lot before/during school) and know you won't be able to use it all up, and got a big signing bonus or something so your first year salary isn't that far from the second...I'm not sure about the math in this case.

Lastly, enjoy all these benefits in the first few years of working! :chuncky: It makes you very happy when you get all your tax back via tuition credits/student loan interest credits...and then get 20k of TFSA room to play around with...and then finally get to use all that RRSP room saved up!  I'm actually super excited for 2013 when I can finally start my RRSP, woot! These "freebies" won't last long, but while you get it them they are really freakin' awesome. :biggrin: (After that I will go back to complaining about how the government taxes us to death, lol...)


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## Sampson (Apr 3, 2009)

@cjk2

You can contribute to an RRSP and not claim the deduction. This gives you the benefit of tax-deferred growth, AND you can claim the deduction after your tuition credits are used up and presumably you are earning more income.

This may still be better than using a non-registered account.


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## Spudd (Oct 11, 2011)

cjk2, the withholding tax in the TFSA only applies to dividends, not to capital gains. So if your foreign stocks are paying you dividends, there will be a tax taken off before it even comes to you. However, the money you get when you sell the stock won't be taxed.


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## cjk2 (Sep 19, 2012)

Sampson said:


> @cjk2
> 
> You can contribute to an RRSP and not claim the deduction. This gives you the benefit of tax-deferred growth, AND you can claim the deduction after your tuition credits are used up and presumably you are earning more income.
> 
> This may still be better than using a non-registered account.


Thanks for this info! RRSPs are still quite new to me (I am planning on going into my bank next month to open one up, along with maybe a non-registered account). I thought I read about "not claiming the deduction" but the way this actually works seems weird to me...so basically I contribute as much as I want to my RESP (I assume up to the limit), but hold off on actually claiming it on my tax return indefinitely? (I'd still be penalized for any amount over the limit + $2k, right?)

So theoretically someone could contribute $100k of money to their RESP over let's say 10 years and then claim it all at once at the end? (Not that it would be the smart thing to do I guess--unless your salary has a huge jump--since you'd be delaying getting your tax money back that could otherwise be invested...)




Spudd said:


> cjk2, the withholding tax in the TFSA only applies to dividends, not to capital gains. So if your foreign stocks are paying you dividends, there will be a tax taken off before it even comes to you. However, the money you get when you sell the stock won't be taxed.


Thanks for the clarification! So basically, if I have index funds, the tax will be taken off the dividends by whoever is managing the fund, so I won't notice anything from my end?

Doesn't that mean you are getting taxed more than necessary if you put a foreign index fund with dividends into your RRSP though? I thought I read somewhere that investments in RRSPs are not subject to this foreign dividend withholding tax. But if this tax is automatically taken off the dividends in index funds, aren't you being taxed unnecessarily?


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## Sampson (Apr 3, 2009)

cjk2 said:


> So theoretically someone could contribute $100k of money to their RRSP (sic) over let's say 10 years and then claim it all at once at the end? (Not that it would be the smart thing to do I guess--unless your salary has a huge jump--since you'd be delaying getting your tax money back that could otherwise be invested...)


Yes.

Whether it is advantageous obviously depends on your situation, but here is a theoretical one, (maybe applicable to new grads) where it would work.

New grad, lots of tuition credits, $20,000 of RRSP contribution room. Tuition credits I believe MUST be claimed, so your taxable income will be reduced in the first 2+ years of employment. If you make the $20k RRSP contribution in year 1 AND claim the deduction, the net benefit (refund resulting from the RRSP contribution will be low).

After all the tuition credits are used up, taxable income may fall into higher taxation rates, therefore use the deduction earned from previous RRSP contribution to obtain larger refund (since the RRSP deduction would be used to offset the income at higher tax rates).

Meanwhile, the $20,000 gets tax-free growth for the first few years vs. an approach where you open a non-registered account, get no refund, and no tax-shelter.


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## cjk2 (Sep 19, 2012)

Sampson said:


> Yes.
> 
> Whether it is advantageous obviously depends on your situation, but here is a theoretical one, (maybe applicable to new grads) where it would work.
> 
> ...


Thank you for that clarification! I guess I always felt like it was too much of a "loophole" so I didn't understand how this deferral could work. But since it's there, I'll definitely take advantage of it.  I'll update my previous post with this helpful advice.

(I think I probably also viewed it the same way as tuition tax credits--which, as you mentioned, you have no choice but to use up as soon as you can. It's great that RRSPs work differently for tax purposes though!)


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## cjk2 (Sep 19, 2012)

Just wanted to add, over the past few days I actually sat down and did some calculations, with the help of the tax calculator at http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2012-Personal-Tax. (Thanks for starting this thread btw--I'd been procrastinating at figuring out all this tax stuff but this thread motivated me to look into these things more in-depth.)

Not sure if I did it right, but based on projected figures, I realized that my tuition tax credits won't go as far as I'd thought (I did use up a big portion of it last year after all), so I will still have significant taxes left to pay. Using some online tax calculators, I then realized that I would actually be getting an additional ~$500 overall in tax refunds if I used all of my RRSP limit this year, INSTEAD of saving it for next year! (My understanding is that because the tuition tax credit is a "credit", applied to tax already calculated, and RRSP is a "deduction", applied to income pre-tax-calculation, the two don't really affect each other.) I don't expect much of a salary increase in 2013 compared to 2012, so no point in saving it.

That definitely changes the way I view things! Now my opinion is:

- Year 1: do not claim any RRSP deductions (due to most people starting work June or later, so they only accumulate half a year of wages; furthermore, most people probably won't have any tax to pay anyways due to tuition tax credits).
- Year 2: if there are not enough tuition credits to reduce tax to zero, use the RRSP deduction! (Unless you expect a significant raise between year 2 and 3?)

It's certainly more complicated than I expected (whether to put money in the TFSA or RRSP in Year 2 definitely seems to depend on each individual situation). I think I'm going to pay a visit to my bank next week to open up an RRSP and start contributing to it instead of my TFSA, so I can be sure of maxing it out by next year's Mar. 1 deadline...


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## the-royal-mail (Dec 11, 2009)

While I don't dispute that there has been a lot of thought put into the ideas discussed herein, I am a little concerned that people are not considering any type of emergency savings plan. To put RRSPs and investing before emergency savings is a huge flaw in a person's finances. I don't care who you are or how rosy you think life is or may be for you, everyone will eventually need to tap into emergency savings. To rely on credit as your esavings (which is what I assume is happening here) is incredibly dangerous. So I would revise the above to say:

1. debt
2. TFSA (this is a very good place to put some of your esavings)
3. HISA/non-reg (for more esavings and tier 4 etc)
4. RRSP

Yes yes I know all the tax people are going to mention that point but the fact is that a strong personal esavings plan is far important to personal preservation and staying out of the gutter than paying less tax via RRSPs and other schemes.

Yes, this will take time and no it's not an instant gratification scheme. The overall idea is to take full control of your financial plan (as discussed above) but to do it in a way that has readily-available personal cash reserves saved for tough times.


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## cjk2 (Sep 19, 2012)

Thanks for the reminder about the emergency savings. I have to admit I don't really see the point in an emergency fund, when it could go towards my investments instead--nonetheless, I do have some money sitting in my bank account right now "just in case" because I read about it in every investment book I read. (It's not a huge amount--basically the bare minimum of my basic expenses only for 3 months, but I figure it'll do.) Perhaps it's a "fallacy of youth" thinking that nothing bad will happen to you...


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## Franko (Mar 31, 2012)

Hey everyone, thanks for the replies. I actually totally forgot about this thread after posting it so I never got to properly thank everyone for their responses. Regarding the inquiries about why I'm in such a hurry to invest in RRSPs - I'm more just during research than anything else. I graduated with no debt and a TFSA that is more or less at capacity, so my next area of interest was RRSPs. Like cjk2, I'm also trying to navigate the first couple years of half-work years and tuition credit in order to maximize my net income.



cjk2 said:


> Not sure if I did it right, but based on projected figures, I realized that my tuition tax credits won't go as far as I'd thought (I did use up a big portion of it last year after all), so I will still have significant taxes left to pay. Using some online tax calculators, I then realized that I would actually be getting an additional ~$500 overall in tax refunds if I used all of my RRSP limit this year, INSTEAD of saving it for next year! (My understanding is that because the tuition tax credit is a "credit", applied to tax already calculated, and RRSP is a "deduction", applied to income pre-tax-calculation, the two don't really affect each other.) I don't expect much of a salary increase in 2013 compared to 2012, so no point in saving it.


I did some research into tuition credits and according to my bank advisor, these credits come off the bottom bracket of your tax tier, and therefore are of no value in saving to deploy after one full year of work (and a higher bracket), dunno if that's helpful to you, but it made things a bit easier for me.



> That definitely changes the way I view things! Now my opinion is:
> 
> - Year 1: do not claim any RRSP deductions (due to most people starting work June or later, so they only accumulate half a year of wages; furthermore, most people probably won't have any tax to pay anyways due to tuition tax credits).
> - Year 2: if there are not enough tuition credits to reduce tax to zero, use the RRSP deduction! (Unless you expect a significant raise between year 2 and 3?)
> ...


I'm taking a similar approach, although I'm torn on whether I want to max out my RRSP every year - on one hand, this is definitely great for retirement, but on the other hand, that money is locked in for life, and I do want to enjoy myself more while I'm younger. Ideally I'd like to strike a balance between the two.


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## MoneyGal (Apr 24, 2009)

For what it's worth: 

1. All tax credits (not just tuition credits) are calculated as the claimed amount * the lowest federal tax rate in effect (15%).
2. Tuition tax credits cannot be "saved" or carried forward to be used in a future year, they must be used immediately to the greatest extent possible.


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## Money4life (May 17, 2012)

GoldStone said:


> Yes, you can. Remember, you get new room as of midnight 01/01/2013. This new room is in addition to the previous contribution room that you carry over from 2012.
> 
> The new room is based on your earned income in 2012. You can easily estimate it using your last pay stub in 2012. Multiply gross 2012 payments (salary + bonuses) by 18%. Apply annual maximum ($23,820 for 2013) if needed. That's your estimated new room that you acquire on Jan 1st.
> 
> ...


Would the "new room" as of midnight 01/01/2013 be the total deduction limit for 2013? When contributing into a RRSP in January or February, does that count as a 2012 contribution or a 2013 contribution? Do we have a choice?

Lastly, regarding deduction limits...does this only pertain to contributions made into a personal RRSP investment or does that include contributions into a pension? I've been thinking it was both but now I'm confused after looking at my Notice of Assessment from Tax Year 2011. My RRSP deduction limit for 2011 was $18,436. I contributed $14,735 into my own investments during the year and that number appeared in the 'Allowable RRSP contributions deducted for 2011' column. I was under the impression that pension contributions were included in the 'RRSP deduction limit for 2011' so I did not want to over-contribute. My employer and I collectively contributed $4,310 into my pension plan and I notice that it comes up as '2011 pension adjustment'. If that is the case, could I have hypothetically contributed the full $18,436 into my own investments and not get penalized because my pension contributions only count as a 'pension adjustment'?

Any clarification would be extremely helpful. Thanks!


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