The deadline

Once upon a time, when people cared what I thought, crowds would gather to hear advice on investing. With trusty support staff in tow (Dorothy) we jetted and propped our way across the country, meeting folks in dusty church basements and glittery hotel ballrooms.

In those days Canada had two worthy airlines. If the AC plane was full, late or cancelled, we’d walk over to the Canadian counter. Easy. No crashes, but one January night the doors froze open in Montreal. On an approach into Halifax during a hurricane the wing hit asphalt and we aborted. Before departing for Fredericton in an ice storm, the pilot came into the passenger lounge to explain the risks (we’d likely have to divert) and let us vote on the flight. We said yes. (And made it.) One day our Beaver float plane took on serious water while landing at Salt Spring Island. And the trip by bush plane over the ice fields to get into Labrador City was unforgettable. Two hours of shaking, with utter nothingness below.

Well, that was when we had an ‘RRSP season’. Media was full of ads for retirement accounts. I wrote an annual book about how to use the things. On deadline day queues actually formed at many banks as people lined up to sign forms and write cheques.

Now, a new world. There are endless ways to set up RRSPs online, stuff them with growthy assets and access reams of advice on how to use a tax shelter to advantage. It’s never been easier. And, besides, nobody goes to financial lectures (or banks) any more. Instead we read pathetic blogs with dodgy comment sections full of people who just want to argue.

About 6.5 million RRSPs exist in Canada, with – surprisingly – 78% of taxpayers making no contribution (in 2022 – the latest stats). The median contribution is a lowly $3,900. And in the last few years, the amount we have in these accounts is, on average, shrinking. In 2022, it was $144,600. Now, that has fallen by 28%. BMO says the national number is $113,000.

Yes, TFSAs have emerged as a popular alternative, and now the crazy FHSA is available, offering the advantages of both the savings and retirement accounts. But with more than $400 billion in RRSPs, they remain the main building block of most peoples’ retirement plan.

So, here we go. Just 11 more sleeps left to make a contribution and have it available as a deduction from 2024 income tax. (The deadline is March 3rd – 24 hours before Tariff Man is set to strike again.)

The max contribution for 2024 is $32,560 – rising to $32,490 this year. So you can see that the median amount people stuff in is sorely wanting – little more than 10%. The good news is that missed contributions get added to available ‘room’ and keep accumulating. You can make up this amount at any time.

So, two things to remember: First, don’t sweat lacking cash flow and contribution little when you are young, destitute and early into your working life. That gathering whack of room can be used more effectively later to reduce rising taxes as your income grows. Second, people who decide to commute a work pension, taking a large lump sum instead of taxable monthly payments, can use their room to chop or eliminate taxation on the package. So the benefit was never lost.

A few other things to bear in mind over the next week:

You don’t need cash to make a contribution. Any bank or CU will lend money for the RRSP. The loan interest is not tax-deductible but you can use the CRA refund to repay a god piece of the borrowing, which means you get equity for nothing. Or, make a contribution in kind. Assets (like an ETF or shares) count the same and can be used. So receive a tax refund for selling yourself stuff you already own. (Be aware capital gains tax may be triggered if moving assets that have gained in value. But the cap gains levy is cheap.)

You can use a spouse to even greater advantage with an RRSP. Open a spousal plan. You make the contribution and he/she gets the money in their account. You claim the deduction (sweet if you’re a higher-income earner), yet the funds are taxed in the hands of the spouse when removed – hopefully at a lesser level. But you have to wait three years to avoid attribution.

Go for growth in your plan. The longer until you retire, the better. GICs are a bad choice (which, sadly, eight in ten people pick) and likely to stay that way for years to come. ETFs are a far better asset class, offering more diversification, very low costs and high liquidity. Invest in stuff, leave it the hell alone, and stop watching BNN.

If you need it, money can be sucked out tax-free for a real estate downpayment – and the latest rule tweaks allow for bigger withdrawals and a longer repayment period. Plus funds can be accessed for education, and also must be repaid. And don’t forget that RRSP assets can be passed on to a spouse, child, charity or estate without ending up in the hands of the finance minister.

Finally, when you hit your early 70s – if still upright, breathing and on your Harley – the plan can be turned into a RRIF. No tax. Still growth. You take annual income, and give thanks you are no longer young, poor, and that you came to hear me speak that memorable night in Fort St. John.

About the picture: “Thanks for your continued efforts to guide Canadians to tune out the noise and focus on what matters most … time with those we love, and enjoying every day … and of course, letting a nice B/D portfolio do its job and pay for it all,” writes Peter, in Kitchener. “Baylie, our 6 yr. old Schnoodle, says to Trump: ‘Don’t even think about putting a tariff on my kibble and toys! I’ll take a bite out of your presidential butt!!’ Lol. Anyway, Thanks for all you do every day.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/02/19/the-deadline-3/