Let's get right to it, here is why I think you should stop putting money away in your RRSP every February

1. Makes it optional so you can easily skip it. Spending now feels better than saving for your future. So, our brains will rationalize why we should spend instead of save if we make it an annual choice. 

2. If you're incorporated, your withdrawal in Feb from your corp will be taxed this year, but the deduction for the contribution will usually be for last year. You will get an unpleasant tax bill next year if you ever stop making February contributions.  

Underlying this is a common miscalculation. We think too fast when it comes to taxes sometimes. 

It's like going to an all-you-can-eat sushi place for dinner after not eating all day. You order a whole bunch of food because you're hungry now. But your future self will be over-stuffed after a few maki rolls, and they will be cursing your current self for being inconsiderate! 

"Curse you for making me eat all of this! I will not be charged waste fees!"  

If it's February and you put money into an RRSP, you will likely get a refund when you file your taxes in a couple of months.  

You do this now, but it all applies to last year. 

I'm going to say that again. You made the RRSP contribution in February (Or January), which is attributed to last year. Then you get the tax refund from last year's taxes.   

And yet, you get a refund now! Yay! 

  But. 

The income taxes on that big withdrawal from your corporation in February will be due next April. By then, you will forget about all of this. The tax refund you got this year will be long spent. And you will owe money to CRA. Queue fist shaking. 

"Curse you for saddling me with a huge tax bill! I don't even remember what I did with the tax refund last year!"  

Sound familiar? 

  

But what if you keep making Feb deposits to your RRSP? Sure, that avoids the second problem above, but what if one year you can't? Maybe you had a rough year or an unexpected expense. You will end up with a monster tax bill and will be unhappy with your past self. It's not worth it. 

  

I hate annual bills. Who remembers to save up for them? Almost no one. So, if you're rushing to come up with RRSP money each February, know this. 

  

There's a better way.  

  

Set up monthly contributions to your RRSP and have that money invested every month. We can set that up for you. All of my clients eventually switch from being February contributors to being monthly contributors. You set it and forget it. You pay yourself first. You order enough sushi to enjoy yourself without a stomach ache. 

  

If you coordinate this with your accountant and accurately withhold taxes, there is no huge bill or refund come tax time. A refund is just getting your own overpayment back. 

  

Accountants differ on whether you need to file a T1213 if you're incorporated, but either way, paying into your RRSP monthly doesn't increase your withholding taxes if you do it right. 

  

Here's how I can help, I will: 

1. Create a financial plan to find out how much to put in your RRSP. Sometimes the answer is $0 (if you're in residency/internship/early startup stage etc., then a TFSA is often a better option) 

2. Communicate to your accountant that you will put money into your RRSP every month 

3. Get a calculation from your accountant how much taxes you should pay every month considering #2; often called an income schedule 

4. Walk you or your banker through how much money goes to CRA and how much goes to your personal bank account 

5. Set up a monthly withdrawal from your personal bank account to your RRSP under my care 

6. Get that money invested in efficient, evidence-based investments – I’ll take care of this part entirely 

 

It might seem like a lot of work, but we do most of it for you. And, once it's done you can sit back and let your money work for you. No more 'RRSP season' anxiety.  

 

PS: I've moved offices to down the street. I'm now on the 7th floor of 2 Robert Speck Parkway. The old office was empty as the accountants I shared it with have gone permanently remote for all their staff and partners. It didn't make sense for us to keep it. The view from my new office is better. Come by and check it out!