Many pension plan sponsors hear from members that one of their biggest challenges is finding room in their finances to make regular plan contributions. Canadians have that same challenge with their RRSPs, too.
A BMO Financial Group study reveals that while three-quarters of Canadians with an RRSP have made or plan to make a contribution before the March 1 deadline, 49% make a lump sum contribution at the end of the tax year rather than regularly investing smaller amounts throughout the year. Perhaps unsurprisingly, 60% of those surveyed said the RRSP deadline causes them stress.
“Uneasiness around the RRSP deadline is understandable when Canadians have other financial priorities to manage, including paying down household debt,” said Marlena Pospiech, senior manager, wealth planning group, with BMO Financial. “Yet there are ways to manage and eliminate that stress.”
In addition to setting up automatic contributions to an RRSP, which reduces the pressure to come up with a large sum of money all at once, Pospiech also suggests that Canadians consider investing “bonus” money—whether that comes from a tax refund, a work bonus or an inheritance. Given that RRSP contributions are tax-deductible, the income invested into the plan can result in a larger tax refund, which can then be reinvested in the RRSP.