You have finally paid off the credit card bills incurred on your summer vacation. Black Friday is coming up and you are starting to get serious about Christmas shopping. But before you do, pay yourself first and top up your retirement savings.
Here are some suggestions:
- Saskatchewan Pension Plan: If you are already a member of SPP, make sure you have contributed the maximum $2,500 for 2017. Also transfer up to $10,000/year into the plan from a Registered Retirement Savings Plan before the end of the year. If you are not a member, it’s never too late to sign up. Historically SPP has had 8% average returns, a 1% or less fund management fee and contributions are tax deductible. Your money will be professionally managed by independent investment firms and you can set up a flexible pension contribution schedule. When you join SPP, you name a beneficiary for your account, which can be changed at any time. If you die before retiring from the Plan, the funds in your account are paid to your named beneficiary. If your beneficiary is your spouse, financially dependent child or grandchild, CRA allows for tax-deferred transfer options.
- RRSP: Avoid the end of February rush and top up your contributions now, before you are tempted to indulge in excessive holiday spending. Your RRSP contribution limit for 2017 is 18% of earned income you reported on your tax return in the previous year, up to a maximum of $26,010. You may also have unused contribution room carried forward from previous years. If you have a company pension plan or you contribute to SPP, your RRSP contribution limit will be reduced accordingly. Contributions are tax deductible and your RRSP investments are tax sheltered until withdrawn. At that time, 100% of the contributions plus interest are taxable at your incremental rate.
- Tax free savings account: A TFSA is a flexible investment account that can help you meet both your short- and long-term goals. Contributions are made with after tax dollars. However, investment income in a TFSA — whether you’re earning interest, dividends or capital gains — is not taxed, even when withdrawn. The contribution room for 2017 is $5,500. Contributions can be carried forward, and contribution room since the program’s inception in 2009 has been $52,000. Money withdrawn from a TFSA can also be replaced in the subsequent calendar year.
- Set up a spousal account: If your spouse is earning much less than you and therefore cannot make significant RRSP contributions, consider setting up a spousal RRSP. A spousal RRSP is simply a plan that you contribute to, but your spouse owns. Making contributions to a spousal RRSP provides you, the contributor, with a tax deduction provided you have sufficient RRSP contribution room, but your spouse will pay tax on the withdrawals from the plan. You may also set up a spousal SPP plan and contribute all or part of your annual maximum $2,500 contribution to your partner’s account. Normally, you can’t contribute to an RRSP in the year after you turn 71 even if you’re still working. But if you have a spouse who is 71 or under, you can contribute to a spousal RRSP and still get a tax break.
- Find a “side hustle:” If you are having trouble making ends meet but you want to top up your retirement savings, the holiday season is the ideal time to look for a side hustle, or part-time job. For example, major retailers hire additional sales help. December is one of the busiest months for shipping companies. Catering companies need chefs, bartenders and servers. Market research companies need Canadians to join their consumer survey panels. You can rent your empty bedroom or apartment on Air BnB to extended families who visit parents living in small apartments, Friends or neighbours who travel are always looking for reliable dog or cat sitters
If you have not already done so, set up automatic withdrawal plans with SPP and your RRSP and TFSA providers. In this way, by late November 2018 you will be able to concentrate on the upcoming holiday season, secure in the knowledge that your retirement savings are on autopilot.
|Written by Sheryl Smolkin|
|Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.|