As the deadline for contributing to a Registered Retirement Savings Plan (RRSP) for the 2012 tax season nears, CTV Edmonton takes a closer look at savings options to see which would work best for you.

The deadline to put money into an RRSP in time for the 2012 tax filing year is March 1.

Some will race to max out their contribution while others, will let the deadline pass.

But is the RRSP worth contributing to?

Accountant Bob Hahn, with Hahn & Houle Chartered Accountants says whether you put money into an RRSP, comes down to the tax benefits – mainly, how much you’ll need to contribute to reduce your income to a lower tax bracket.

“It’s all about tax brackets, it’s about tax rates and what your future tax bracket and tax rate is going to be like,” Hahn said.

“If you’re in a high bracket today and in the future, you’re going to be in a lower bracket, then we right away recommend full RRSPs or lots of RRSPs. The idea being, put it away when you’re in a high bracket, pull it out when you’re in a low bracket.”

Essentially – put away money when you’re in a high tax bracket then pull money out when you’re in a lower bracket, and earning less money, during times like maternity leave, a return to school or retirement.

“You can pull money from an RRSP at any point. If you’re planning a sabbatical, going back to school or having a lower income year, plan a head and buy full RRSPs today and in that year when you have a lower income level, pull the money from the RRSP,” Hahn said.

If you’re in the mid-to-upper end of your tax bracket, or have other debt, Hahn says an RRSP might not be the best option.

He recommends considering a Tax Free Savings Account (TFSA) instead.

“If you have credit card debt, if you have other debt that has high interest, that’s non-tax-deductable, I’d consider paying off that debt and that being a great investment rather than a marginal return within a TSFA or an RRSP,” Hahn said.

“Once again, if you pay down your credit card, don’t be tempted to spend and take your credit cards right up to the max again. It’s all about balance. It’s all about tax brackets and what you would do in the future.”


Many financial options available to Canadians

Accounting student Janine Eccleston spends her spare time blogging about personal finance. 

Her blog 'My Pennies, My Thoughts' includes resources, saving goals, and spending, investing and saving tips and how-to's.

Eccleston, a fourth-year accounting student, opened an RRSP at the age of 19.

“As a student, I’m still not able to contribute my maximum but when I was working, for my work term, I was trying to contribute as much as possible,” she explains.

Because Eccleston is a student, she’s in the lowest tax bracket.

If she followed Hahn’s advice, she would only put her money into a TFSA because all of the investment growth is tax free.

But Eccleston says she’s found it most useful to contribute to both a TFSA and an RRSP.

“It locks that money away and you can’t touch it whereas with a TFSA, they’re great savings tools, but you can take the money out very easily,” Eccleston said.

Hahn says the advantage of a TFSA is that it gives the taxpayer more options.

You can later redirect TFAS funds to an RRSP or consider other investment options that could attract tax-free growth such as a home.

Eccleston says she is waiting to declare her contributions on her tax return until she gradates – and starts earning more money.

“I have never claimed the tax benefit. You can carry them forward until you are in a higher refund bracket where the refund would benefit you more,” Eccleston said.

“Then it will reduce what I owe or increase the refund I get,” she said.

She says many people – especially young people – don’t realize how many deductions and benefits are available to Canadians.

“I think there’s definitely a lot to learn,” she said. “I definitely think researching and researching what you’re able to claim is a great way to save money. There are unbelievable amounts for things that I never thought there would be deductions for.”

Hahn says there is no length of time Eccleston can defer her RRSP contributions.

It can be done in any tax year as long as it’s before you turn 71 years of age.

With files from Laura Lowe