The RRSP deadline 2021: what you need to know

RRSP season is upon us once again, but what does it mean, exactly? And why does it matter?

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You’ll no doubt have seen lots of ads lately, advising you to make your RRSP contributions before the upcoming deadline. Every year we’re bombarded with messages telling us to hurry up and contribute, but what’s the rush? And why is the RRSP deadline for 2021 such a big deal? 

Registered retirement savings plans (RRSPs) let Canadians save for retirement in a tax-deferred way. This means they allow your investments to grow completely tax free until you withdraw them, while providing a tax break when you make the contributions. The money you invest in your RRSP reduces your income for tax purposes, so, normally, you would receive a tax refund.

If you make the RRSP deadline 2021: Some RRSP tax refund examples

Contribution

Tax bracket 

Tax refund 

$5,000

23.62%

$1,181

$10,000

28.20%

$2,820

$15,000

40.70%

$6,105

Not surprisingly, many Canadians want to receive as large a tax refund as possible, so it makes sense for them to contribute the maximum they can before the RRSP contribution deadline.

When is the RRSP contribution deadline 2021 tax year?

While the Canadian tax year for individuals ends on December 31, you can make RRSP contributions right up until the RRSP deadline for the 2021 tax year, which is March 1, 2022. The reason for extending this contribution time limit is to give you the chance to work out how much you earned last year, so you can maximize your contribution.

In what circumstances should you try to make the RRSP deadline for the 2021 tax year?

If you have the available money to save, making the RRSP contribution deadline means you’ll receive your tax refund a whole year earlier than if you miss it. That money can also be invested in your RRSP, which means it would have an extra year to grow, tax-deferred.

It’s important to remember though, that making the RRSP deadline for the 2021 tax year is only worthwhile if RRSPs are a good option for your personal financial circumstances. While you do get a tax break when contributing to your RRSP, you will be taxed when you eventually start to withdraw money from it, after you retire. If your retirement income is likely to be similar to what you currently earn, the tax break may not be beneficial in the long run.

In fact, if your current income and tax rate are low, it could make more sense to invest in a TFSA instead. You won’t receive an immediate tax break, but your investments will still grow tax-free, and you won’t be taxed when you withdraw from it.

What if you can’t decide what to invest in before the RRSP deadline?

If you’re not sure what kind of investment will best suit your needs, you can still make a contribution before the RRSP deadline and put the money in a liquid RRSP cash savings account. You can then easily switch the money to any other RRSP-qualifying investment, at any time after the deadline.

What happens if you miss the RRSP deadline for the 2021 tax year?  

It’s not too devastating if you miss the deadline. You will have to wait an extra year to receive your tax refund and miss out on that money growing over the next year. However, if it means you don’t use up your RRSP contribution limit, that amount can be rolled over and used up next year.

What can you invest in if you make the RRSP deadline for the 2021 tax year?

If you’re determined to make the RRSP deadline, there are plenty of ways to invest your money, far beyond an RRSP cash savings account. There are rules surrounding which investments you can have in an RRSP, which the CRA calls “qualified” investments. For example, stocks need to trade on at least one “designated” stock exchange, as determined by Canada’s Finance Department.

Before investing, it pays to check with your IG Consultant or financial institution first, as there can be tax consequences and penalties for having non-qualified investments in your RRSP. Some of the investments you can hold in your RRSP include:

Mutual funds: These are groups of stocks and/or bonds (often containing hundreds of assets), which have been selected by investment managers. They give your portfolio considerable diversification, among other benefits. 

ETFs: These are similar to mutual funds, except they are traded on stock exchanges, often have less ongoing involvement from investment managers and usually come with lower management fees. 

Bonds: These are loans to governments and companies, and so, while the potential returns they offer are usually lower than what you might get with stocks, the risks are usually less. 

Stocks: These are shares in publicly traded companies (listed on designated stock exchanges).

Most people investing in RRSPs need a significant rate of return so that their money grows sufficiently by the time they retire. Therefore, your RRSP portfolio should have an adequate percentage of stocks, mutual funds and/or ETFs so that it can provide you with a comfortable retirement. 

Talk to your IG Consultant before the RRSP deadline for 2021 of March 1 to discuss the options that will work best for your unique financial situation. If you don’t have an IG Consultant, you can find one here.