The strategies below can help you reduce your tax bill, grow your savings and put more towards the goals that matter to you.
Contribute regularly
If you’re not currently contributing regularly to your employee savings or individual savings plan, now is a great time to start – the new year is the perfect opportunity to reset your financial habits. Keep in mind, starting early gives your money more time to grow. Getting in the habit of regularly contributing through your payroll or setting up automatic contributions can help you start strong and stay consistent throughout the year.
Make the most of your registered plans
Both Registered Retirement Savings Plan (RRSPs) and Tax-Free Savings Accounts (TFSAs) offer valuable tax advantages that can help your money grow faster. With an RRSP, your contributions reduce your taxable income for the year – which could mean a bigger refund or smaller tax bill – while your investments grow tax-deferred until withdrawal. With a TFSA, your investment earnings and withdrawals are completely tax-free, so every dollar you earn stays in your pocket.
Either way, your money has the opportunity to grow in a tax-sheltered environment, giving you more from every contribution.
Maximize your savings through employee savings plans
Employee savings plans are designed to help you save towards your financial future. Contributing directly from your payroll allows you to pay yourself first – and it may also provide you with meaningful tax advantages.
Some plans also offer employer contributions, which can help you accelerate your savings. This is a perfect opportunity to take full advantage of your employee benefits – don’t leave money on the table!
Keep your beneficiary information up to date
Keeping your beneficiary information current is an important part of financial planning. The new year is a great time to review, remove or update the names of your beneficiaries to ensure your assets are passed along efficiently – naming a beneficiary can help avoid delays, probate fees or unintended tax consequences for your loved ones.
Plan ahead for retirement income
If you’re contributing to an RRSP, it’s worth looking ahead to how and when you’ll start drawing from it – especially if you’re nearing retirement or thinking about what that next stage might look like. Planning early can help you smooth the transition from saving to spending and reduce your overall tax bill.
Keep in mind, you’ll need to convert your RRSP to a Registered Retirement Income Fund (RRIF) by the end of the year you turn 71, but there are other options to consider too, such as purchasing an annuity for predictable lifetime income. The right approach will depend on your needs, comfort with risk and goals for retirement.
Coordinating RRSP withdrawals with other income sources – such as pensions, TFSAs or non-registered accounts – can help you manage your taxable income and preserve government benefits such as Old Age Security (OAS).
A fresh new year is full of possibility. Whatever stage of life you may be in – whether you’re just starting out or getting closer to retirement – a few simple steps now can make a big difference at tax time. But that’s just the start. Smart financial habits that you establish today can help build confidence towards your financial future.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
