Feb. 29 deadline waits for no one
The registered retirement savings plan deadline at February’s end waits for no one. So, for the many — and there are many — of you who want to contribute but haven’t done so yet, you don’t exactly have a lot of time left.
With February one day longer this year, however, you do get an extra day with the 29th. Also, check your bank’s local branch for extended hours to accommodate those with busy schedules looking to build up their RRSP.
“All Canadians should be aware of the deadline,” says John Dale, executive vice-president of Mackenzie Investments. “The CRA (Canada Revenue Agency) is not known for its flexibility. The end of the month is the end of the month.”
The elderly get an additional reprieve due to changes in the last federal budget: Starting in the 2007 tax year, the age limit to contribute to an RRSP was raised from 69 to 71, offering seniors two more years to build along with more tax-sheltering benefits, such as turning a registered retirement investment fund (or RRIF — what investors often convert their RRSP into upon maturity) back over into their RRSP for a potentially higher payoff. The new rules can get convoluted, though, and fees may apply. Industry professionals suggest you take some time with a good adviser before you proceed.
“Use the time you have. It’s your greatest advantage when you’re looking at RRSPs,” says Steve Geist, president of Asset Management at CIBC.
But with a meagre $221 million put into RRSP mutual funds in January as opposed to the same time last year when the tally reached $4 billion, as reported by the Investment Funds Institute of Canada, it appears this year’s RRSP contributors aren’t taking advantage of their time.
Latecomers face the bane of a ticking clock when deciding which areas they should sink their money into, often resulting in many potential contributors waiting until next year. StatsCan reported Canadians left a jaw-dropping $437 billion in unused RRSP contribution room as of last March 31.
Parking your contribution is a common-sense solution for the last-minute club, says Dale. If you’re stuck for investment ideas on short notice, or if the market is too volatile for your liking, you can make payments to a low-risk, low-yield money market fund before the cut-off date and then decide whether you want to switch to something more aggressive later on, which many do. The institute estimated $4.5 billion in investor cash found its way into money market funds’ coffers this January.
Taking a week to decide how to invest your money is a small price to pay, Dale says, when compared with a financial plan that can benefit you in the years and decades to come. “It’s considerably advantageous for an investor to establish the fund in the short term and then decide on the long-term plan at their leisure,” he says.