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RRSP’s versus TFSA’s
RRSP will always make sense if you have a higher marginal tax rate today than when you take the funds out. If your income is $50K today your marginal tax rate is approximately 32%. A couple in retirement with an income of $80K is paying an average tax rate of 10%. See the benefit. This isn’t including the refund and which can be used to fund many goals.
RRSP’s versus Paying down your mortgage
Mortgage rates are low and will remain relatively low for the foreseeable future. Contribute to your RRSP now while you have a higher earned income and use the refund to pay down the mortgage. Another strategy, depending on how well funded your retirement is, would be to stretch out the amortization of your mortgage. This will reduce your mortgage payment and increase your cash flow to help fund your retirement plan.
Unused RRSP contribution room
Unused contribution room on your Notice of Assessment generally implies an underfunding in retirement. Speak to your advisor about strategies to utilize this room. Remember for every dollar of pre-tax retirement income you need $20 in your retirement portfolio. Take special note of unclaimed contributions; this is the portion that has been contributed but not yet deducted.
Guaranteed income supplement –
Most retirees are familiar with Canada Pension Plan and Old Age Security. If you're a senior between the ages of 65 and 71 and are collecting the Old Age Security, you may or may not be eligible for the Guaranteed Income Supplement. An RRSP contribution will reduce your taxable income and if planned correctly can enable you to receive the supplement. That could amount to almost an extra $9000 per year.
Tax-free dividend income
Canadian dividends offer some fantastic value. Investors can have $45K in dividend income and pay zero tax. It makes sense to keep dividend-paying investments outside of your registered plans once they’ve been maximized.
Spousal RRSP’s
Spousal RRSP may make sense for a high-income earner who is over 71 but has a spouse who is younger. They will get a tax deduction at the higher income and be putting money away for their younger spouse.