Why RRSP Season Should Last All Year

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February 8, 2021

Around this time of year, it can be hard to escape the urgent reminders shared by banks and financial institutions: another RRSP season is upon us, and the annual contribution deadline is looming. Stash some savings away now or forget about a refund at income tax time!

What wise investors know, however, is that there’s no such thing as RRSP season. In truth, contributions to retirement savings plans can be made at any time of year. The reason there’s a deadline linked to the end of the tax year is because every dollar you contribute to an RRSP is one dollar less you’ll have to pay income tax on. Contribution limits are tied to income, so those intending to maximize their contribution need the extra time to know how much their earnings from the previous year will allow. 

If you’re the kind of retirement investor who rushes to beat the RRSP deadline every year, then forgets all about it for the next 10 or 11 months, it’s time to start stretching things out. Only thinking about saving for the future a few weeks of the year isn’t the best way to get the retirement income you really want. A far better approach is one that lasts all year long. Here’s why. 

You’ll stop scrambling to save 

By making monthly contributions to your RRSP, instead of a single lump sum before the deadline, there won’t be a mad scramble to find money in time. The idea of coming up with a contribution of $6,000 all at once isn’t easy for everyone. Breaking it down into monthly deposits of $500 makes it feel far more manageable. Even if you aren’t able to reach your full RRSP amount through monthly contributions, you’ll ensure there’s something being saved. In some cases, investors may find they have additional money available to contribute before the deadline, meaning they end up saving more than expected.  

You’ll be less likely to borrow to make a contribution 

Some savers finance contributions to their RRSP by taking out a loan, then use their income tax refund to help pay that loan back. Instead of making loan payments and covering interest charges, you’d be far better off putting money into your own RRSP account every month. 

You’ll get your money working for you right away 

When you invest money into an RRSP, it starts working for you right away. Plus, the income generated inside an RRSP is tax-free. So why would you wait months and months to invest? In the long run, waiting could cost you thousands of dollars. After decades of investing, a saver who contributes $500 to their account each month will have accumulated more money than a saver who contributes a single lump sum payment of $6,000 every year. 

You won’t be tempted to try and time the market 

Some investors are wary of contributing to their accounts when markets aren’t performing at their peak. In reality, it’s virtually impossible to make all your investment decisions at the ‘right’ time. Rather than fretting about timing, follow the theory of dollar cost averaging to limit your exposure to market volatility. By spreading equal investment purchases over periodic intervals, you’re as likely to make as many well-timed buys as you are ill-timed ones in the long run.