The Hamilton Spectator

Double-up RRSP tax planning strategy

Second half of our two-part strategy to prepare now to reap the tax benefits in 2023

THIE CONVERY

In my last Money for Life column, I offered a reader advice on how he could reap tax benefits, even after he had already converted his RRSP to a RRIF, using the first half of my double-up RRSP tax planning strategy.

Now I offer the second half of that two-part strategy, which poses a tax planning opportunity for individuals like him who will still have earned income in the year in which they turn 72.

Back to my reader’s situation. Assuming your income exceeds $171,000 next year, you will create RRSP contribution room of $30,780 in 2023, the maximum for that year. But, because you will turn 72 next year, you will not be allowed any RRSP contributions in the 2023 tax year (or any year following).

But let’s presume you have taken advantage of the tax-planning strategy in my last column (establishing a new RRSP, in addition to your RRIF) to maximize your 2022 RRSP contribution and reduce your 2022 tax bill. The second half of the double-up strategy involves using that new RRSP to make your 2023 contribution before the deadline for 2022 RRSP contributions. Stay with me!

The RRSP contribution deadline is the sixtieth day of the following year, which is usually March 1. (However, if the sixtieth day of the year falls on a weekend, the federal

government usually amends the date to the next business day.)

You ought to consider making your maximum 2023 RRSP contribution before the end of 2022 to the RRSP you recently established. The catch is that this will put you over the maximum allowable contribution in 2022 — but bear with me, there’s more.

Normally, you’d want to be very cautious about contributions to your RRSP in excess of your maximum limit because those surplus amounts are subject to a penalty of 1 per cent per month. (Although, there is an allowable over-contribution limit of $2,000, which carries

no such penalty — a sort of grace given by the federal government to account for accidental over-contributions. We’ll come back to this.)

There’s no getting around it, your substantial, one-time over-contribution will be subject to the penalty of 1 per cent per month. If you had made this extra contribution earlier in the year, you would be penalized for multiple months, so waiting until December reduces the penalty to only one month. (As of Jan. 1, 2023, the penalty ceases, when your new RRSP room would normally become available.)

Additionally, you are allowed the excess RRSP contribution of $2,000 without any penalty. As such, only $28,780 will be subject to the one per cent penalty, which will equate to only about $288 owing to

CRA. That small penalty will be more than offset by the full RRSP deduction of $30,780 when you file your 2023 income tax return by April of 2024. (In fact, CRA allows you to carry-forward this contribution amount to deduct in any future year, whenever it is most tax beneficial to you.)

You will need to complete a T1OVP Form to calculate the RRSP overcontribution penalty. Then file the form with CRA within 90 days of the following year and remit the penalty amount. It’s a little shortterm pain for long-term gain!

Immediately after making your over-contribution this year for the 2023 maximum, you will be required to convert your new RRSP into your current RRIF before the end of 2022 (along with the contribution

You ought to consider making your maximum 2023 RRSP contribution before the end of 2022 to the RRSP you recently established

you made of the 2022 maximum, which we covered in the last column).

This year, the conversion must be completed by Friday, Dec. 30, so do not hesitate. This simple strategy allows you to maximize your 2023 RRSP contribution before the 2022 deadline and receive the tax deduction in 2023. But don’t delay, this is your last opportunity to implement this most valuable tactic – forever!

THIE CONVERY, R.F.P., CFP, CIM, FMA, FCSI, IS A WEALTH ADVISOR IN DUNDAS, AND HAS A FEW MORE YEARS BEFORE SHE CAN USE THE DOUBLE-UP RRSP TAX PLANNING STRATEGY. HER COLUMN APPEARS BI-WEEKLY IN THE HAMILTON SPECTATOR. THIE INVITES YOUR QUESTIONS AT THESPECMONEY@GMAIL.COM OR BY VISITING CONVERYWEALTH.COM.

ARTS & LIFE

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2022-12-08T08:00:00.0000000Z

2022-12-08T08:00:00.0000000Z

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