6 common RRSP mistakes

By Staff | January 15, 2014 | Last updated on January 15, 2014
2 min read

Ensure your clients steer clear of RRSP missteps and missed opportunities this contribution season.

There’s fewer than two months until the 2013 RRSP contribution deadline, and 43% of Canadians are planning to contribute, shows a BMO survey. BMO has some guidance for those making contributions:

#1. Don’t be hasty

Steer your clients away from making rushed decisions on how to invest their savings. Instead, suggest a client make a cash contribution to her RRSP and take the time to evaluate the investing options that best match her life stage, risk tolerance and retirement goals.

Read: More beat RRSP deadline

#2. Don’t skip a contribution when money is tight

If a client doesn’t have enough cash to invest in her RRSP, suggest she consider making an in-kind contribution of other securities she owns – such as stocks or bonds. Or, she could take out an RRSP loan – especially if she plans to use the resulting tax refund to pay down the amount she borrowed.

Read: Reliable retirement income streams

#3. Don’t over-contribute

To help clients avoid the 1% per month penalty on contributions that surpass the $2,000 excess contribution limit, review their notices of assessment to determine their limits. If a client has more money available to contribute than allowed, consider advising them to reallocate funds into a TFSA or to set up a non-registered savings plan.

Read: Faceoff: TFSA vs RRSP

#4. Don’t misunderstand

Some client’s don’t grasp that money in an RRSP should remain there until needed for retirement. However, if a client requires money to purchase her first home or to fund education later in life, she can make a withdrawal without paying taxes by using the Home Buyers Plan or the federal Lifelong Learning Plan. Although she is required to repay her RRSP within 10 to 15 years, these types of withdrawals are not added to her income.

Read: Help students save money

#5. Don’t forget to name a beneficiary

Ensure clients designate the value of their RRSPs to loved ones, and help them review that decision regularly to ensure their retirement savings don’t incur unnecessary taxes when transferred, if included as a part of their estates. Naming a spouse or partner as a beneficiary will enable the transfer of the funds to his or her own RRSP tax-free.

Read: When your client wants to change beneficiaries

#6. Don’t shun professionals

For some clients, understanding the intricacies of retirement planning, along with tax and estate considerations, can be a daunting task. For more complicated matters, refer them to estate planners and other specialists to get advice that reflects their retirement goals and objectives.

Read: How to lose referrals

Advisor.ca staff


The staff of Advisor.ca have been covering news for financial advisors since 1998.