RRSP deadline: Some experts say it’s best to ‘think twice’ before contributing

The deadline to contribute to the registered retirement savings plan (RRSP) is coming up, but a new option to lower taxable income while saving for a home complicates the decision.

With the contribution deadline for the registered retirement savings plan (RRSP) approaching, Canadians have more choices than ever for where they want to sock away their savings to get a lift on their tax returns.

While prospective homeowners may be weighing the pros and cons of an RRSP over tax-deductible contributions to the relatively new first home savings account (FHSA), many Canadians indicate they’re feeling stretched when it comes to saving for retirement at all.

Global News spoke to financial planners ahead of the upcoming RRSP deadline to get a sense of how Canadians should be thinking about their investments amid competing priorities and looming economic uncertainty.

Thanks to the leap year, individuals have until Feb. 29 to make RRSP contributions count towards deductions for the 2023 tax year. The income tax filing deadline for individuals is April 30.

Money put inside an RRSP grows on a tax-deferred basis, meaning an individual can claim a deduction on their taxable income for a contribution and pay the taxes on that amount when they withdraw it.

Ideally, this would happen after retirement when income typically falls within a lower tax bracket.

For this reason, RRSP contributions have the most benefit for Canadians who are high-income earners, says Jason Heath, certified financial planner and managing director with Objective Financial Partners.

“The tax deduction, in the very long run, if you look to retirement, is generally only beneficial if you’re contributing at a relatively high tax rate and pulling the money out in the future at a relatively low tax rate,” he says.