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Practical tips to boost your RSP
Act now - here's why Many of us probably carry some unused contribution room. While it's reassuring to know that you can always play catch up when you have the cash, unused contribution room potentially represents the loss of many years of compound growth. And as your contribution room grows, it becomes more difficult to make large lump sum payments to catch up. Here's a quick action plan to help keep you on track: -with your advisor, or using an RSP calculator such as the Scotia RSP Reality Check tool, determine what you'll need to live your desired lifestyle in retirement -next, determine what part of that will need to come from your investments -then, match your RSP contributions with your targets Should you borrow? To help you maximize your contribution, consider borrowing to top up this year. This is a particularly attractive solution today, with interest rates still near historic lows. The potential tax refund from your higher contribution can be used to repay part of the loan. By repaying the loan in a shorter time frame, the return on your investment could outweigh the interest costs of the loan. Invest your bonus Why not use any extra cash you received from a raise or bonus to top up your contribution? If you receive a bonus, tax is withheld from your payout at your highest rate. However, you can avoid this in future by arranging with your employer to have any future bonus payments put directly into your RSP, provided you have the contribution room. The bonus is treated as income, but you get the full deduction, and your money goes to work for you - tax sheltered - right away. Other financial windfalls include a severance package or an inheritance, or smaller amounts from a reimbursement cheque for a dental or prescription bill, for instance. And of course, any potential tax refund you receive this year can be put to good use for next year's contribution. Transfer existing investments If you are finding it difficult to maximize your contribution, you can contribute eligible investments held in a non registered account to your RSP and claim a deduction for the market value of the security. To employ this strategy, you need to have a self directed RSP. And there are some caveats. If you contribute an asset that has appreciated in value, it may trigger a capital gain. However, if you contribute an investment that has decreased in value, you are not allowed to claim a capital loss against any gains. Start a good habit Putting money aside is not always easy. Instead of waiting to see what's left over at the end of the month, try to turn savings into a regular habit. Once formed, good habits (just like bad ones) are hard to break. The best way to do this is to set up a pre-authorized contribution (PAC) plan: Money is automatically withdrawn from your bank account every month and directed into the investment of your choice. For future contributions, a PAC plan may be the right solution for you. It is convenient, adds discipline to your savings goals, can help you maximize your contribution, and you won't have to scramble for cash at RSP time. If you are investing in mutual funds, investing a set amount on a regular basis lets you take advantage of dollar cost averaging - you purchase more units when prices are low and fewer when prices are high. Over time, this can reduce the average price you pay. The proceeding information was provided by Graham Barber, Branch Manager of Scotiabank, Alcona Branch. The Scotiabank, Alcona Branch, is located at 1161 Innisfil Beach Road, (705) 431- 6116. The Vault is a weekly series of articles provided by Graham Barber with financial advice and suggestions. |
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