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RRSP tips for the retired and semi-retired

Just because you're retired or about to retire, doesn't mean you can't still benefit for your Retirement Savings Plan (RSP). In fact, Myron Knodel, CA and Director, Advanced Financial Planning Support at Investors Group recommends that retirees and pre-retirees make sure they haven't overlooked any possible RSP opportunities before they turn 71 and have to wind-down their plans.

Here are Knodel's top three strategies on how to squeeze the most out of your plan to age 71 and even beyond.

1. Contribute as long as you can

Whether you're officially retired or not, you can continue contributing to your RSP right up to the end of the year in which you turn 71. Your contribution limit is based on your earned income of previous years. As long as you have unused contribution room, you can contribute, regardless of your employment.

Earned income includes money from a long list of sources, not just employment income from a full-time salaried position. For example, it also includes commission earnings (less employment expenses), net self-employment income, net rental income, alimony payments you receive and supplementary unemployment benefit plan payments.

It does not include investment earnings, pension proceeds, Old Age Security benefits, Canada/Quebec Pension Plan benefits, or payments from a Retirement Income Fund (RIF) or Tax Free Savings Account (TFSA). In addition, earned income is reduced by alimony payments you make and losses incurred from a rental property or self-employment.

Even if you don't have earned income, you may still be able to contribute by taking advantage of any unused contribution room you've carried-forward.

2. Claim the deduction later

You don't have to deduct an RSP contribution in the year you make it. In fact, you can even claim the deduction after age 71.

If you expect your marginal tax rate to be higher in a future year than now, you may want to save the deduction until that time. For example, suppose you're planning to sell your business in three years. You expect your taxable income will be significantly higher than it is now. At a higher tax rate, your deduction will generate a greater tax benefit.

Note that you can use this strategy even if you're over age 71 or have already collapsed your RSP.

3. Contribute to the RSP of a younger spouse

You can contribute to a spousal RSP up to the end of the year in which your spouse turns 71—regardless of your own age. The only requirement is that you have unused RSP contribution room.

The tax deduction is yours to claim in whatever year you choose, while the money and its growth augment your spouse's plan. As long as your spouse does not make withdrawals from a spousal RSP within at least two calendar years after the calendar year it was contributed, it will be taxed in your spouse's hands.

If you're concerned that the money might be needed during this restricted period, you'll want to discuss this strategy with your Investors Group Consultant to see if it's still beneficial. Different restrictions apply if the spousal plan is rolled into a RIF or used to buy an annuity and special exceptions apply in the case of death and marital breakdown.

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Written and published by Investors Group as a general source of information only. It is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax, legal or investment advice. Readers should seek advice on their specific circumstances from an Investors Group Consultant.