Easy Ways to Maximize Your RRSP

Whenever I’m asked whether someone should invest in a RRSP or TFSA, my answer is always the same. Folks in a high (or even medium) tax bracket should fill up their RRSPs first because of the immediate tax benefits.

Plus, I’m convinced putting savings away in an RRSP is easier than a TFSA.

Take workplace matches as an example. Almost every employer offers some sort of RRSP match scheme, either through a pension or something not quite as generous. This is by far the easiest way to maximize your RRSP dollars. It’s literally free money.

Many employers will match up to 5% of your salary. If you make $50,000 a year, that’s $2,500 each year for free. Not bad for filling out a few forms.

Another easy way to end up with more cash in your RRSP is to set up automatic deductions. Each paycheque, transfer $50 or $100 into your investments. It’ll really add up over the course of a year.

Finally, you should use what I like to call the RRSP compounding effect. Here’s how it works. Say you’re in the 25% tax bracket and contribute $10,000 annually to your RRSP. This will immediately reduce your taxable income by the same amount, which adds $2,500 to your tax refund.

The key is to then invest those free dollars immediately into next year’s RRSP. This immediately creates a $500 tax credit for next year. You’ve made money off free money.

Essentially, you’re getting a 25% immediate return for every dollar you tuck away into your RRSP, guaranteed. Good luck beating that with other guaranteed investments.