January is over and the deadline for your 2018 tax return is soon approaching. While you are probably eager to say goodbye to the past year and look ahead to all that the new year has to offer, you still need to take one final look back at 2018 before you put it out of sight and out of mind.
Before you settle into 2019, you will have to complete your 2018 tax return. In most cases, once December 31 hits, you have lost your opportunity to leverage the last minute tax planning strategies that will fully optimize your return.
There is, however, one tax planning strategy you have in your toolbox to ensure you make the most of your 2018 income tax return - Registered Retirement Savings Plan (RRSP) contributions.
RRSPs were specifically designed with long-term savings in mind and can be a great tool for reducing your tax owing. When you contribute to your RRSP, you are able to reduce your taxable income in the year that the contribution was made, reducing your tax owing.
When you withdraw those funds, usually after retirement when your income has been substantially reduced, you will be taxed on your withdrawals - hopefully at a lower tax rate.
Unlike other tax planning tools, you can utilize your RRSP until March of the following year. As such, the RRSP contribution deadline for your 2018 tax return is March 1, 2019 (unless, as discussed in our previous blog ‘Looking to Save Money in 2019? Understanding the Difference Between RRSPs and TFSAs’, you turned 71 in 2018).
The 2018 RRSP contribution limit is 18% of the income you reported on your 2017 tax return, up to a maximum of $26,230.
If you do not contribute the full amount in any given year, it is carried forward indefinitely.
Looking forward, the 2019 RRSP contribution limit is 18% of the income that is reported on your 2018 tax return, up to a maximum of $26,500.
To find out if you could benefit from additional contributions to your RRSP before the March 1 deadline, contact us today.