Tax season is always a nerve wracking time of the year. You’re crossing your fingers that you aren’t going to owe an entire pay cheque in taxes back to the taxman. One way to help reduce the amount of taxes owing to the government is to contribute to your RRSP.
I know what you’re thinking, “I just started earning some decent money, so why should I be concerned about saving for retirement?” Truth is, the earlier you start planning and saving for your retirement, the better off you will be. Even investing the minimum amount into RRSPs at a young age will grow into more money (because of compounding interest) than if you were to invest a larger amount further down the road. If you’re one of those people that want to travel the world once you retire, you might want to seriously consider starting to contribute to your RRSPs sooner rather than later.
So what does this have to do with your taxes? Well, any money that you put into a RRSP is tax deferred, which means that you don’t pay taxes on it today and you may even receive a tax refund – bonus! However, you should keep in mind what tax deferred means. It means that you don’t pay tax on the money this year, but you will when you take it out of your RRSP account. Luckily, when you withdraw money from a RRSP account you are usually in a lower tax bracket. You benefit from getting to pay a lower amount of taxes on that money, plus you get the benefit of receiving the interest that your money has generated over the years, instead of giving it to Revenue Canada today!
So what are you waiting for? The deadline to make a RRSP contribution towards your 2011 income tax is Wednesday, February 29, 2012. If you already have a RRSP set up and want to ensure you aren’t going to owe the government an arm and a leg in taxes, you might want to head down to your nearest Servus branch to discuss making a contribution. If you haven’t started contributing to your RRSPs yet, don’t worry, there’s still time to meet with a Servus financial advisor. They will help you decide on what type of investment is best for you and your financial situation. Perhaps you want to make a lump sum payment, or start with making monthly contributions. Servus staff members are ready to help you find a solution that best suits your lifestyle. You can also check out the Canada Revenue Agency website for more information about RRSP contributions.
Keep your money in your pocket, not the taxman’s,
Young & Free Alberta Team