What to do With Your Registered Plan Before December 31, 2016
- RRSP Contributions
In order to obtain a deduction on your 2016 personal income tax return, you must contribute to your RRSP on or before March 1, 2017. As always, consider contributing earlier so that your money is growing tax free as soon as possible.
- Spousal Contributions
Contributions made to a spousal plan before December 31 will allow your spouse to withdraw those funds on January 1, 2019. If you wait until January 2017 to make the contribution, then your spouse cannot withdraw the funds until 2020.
Remember, the contributor to the spousal plan ideally obtains a deduction at a high tax bracket while the annuitant withdraws the funds after two years at a lower tax bracket.
- Early Contribution
If you turned 71 during 2016, you must wind up your RRSP by December 31. However, if you have “earned income” in 2016, this will allow you to receive a RRSP deduction on your 2017 personal income tax return. The problem is that you will not able to make a RRSP contribution in 2017 because you have to wind up your RRSPs in 2016.
Consider making the 2017 contribution before December 31 – you will have over-contributed to your RRSP for one month and will be liable for the over-contribution penalty. However, the penalty will be insignificant compared to the 2017 RRSP deduction.
- 2017 RRSP Deduction
Your maximum RRSP deduction for 2017 is limited to $26,010. In order to obtain this full deduction, your 2016 earned income must be at least $144,500. Consider maximizing your 2016 earned income.
- Converting to a RRIF
If you have to set up a RRIF before the end of the year, ensure that the mandatory withdrawals are based on the age of your spouse if he or she is younger. This will reduce the minimum withdrawal and allow you to defer tax longer.
- If you are 65 or older, consider establishing a RRIF or annuity to take advantage of the $2,000 pension credit.
- Review the assets in your RRSP, RRIF or TFSA to ensure you have no non-qualifying assets.
- If you need to withdraw funds from your TFSA, do so before December 31. This will allow you to recontribute this amount in the following calendar year.
Chris Munn, Tax Partner