Midnight of February 29, 2008 is the deadline for RRSP contributions for the tax year of 2007. RRSPs give Canadians a tax break, as well as letting your hard earned money grow tax-deferred. This differs from capital gains and interest accumulated on other investments, which are added to your taxable income for the year. As RRSPs are deducted from your taxable income, it effectively reduces the total amount that is subject to taxation. Waiting until retirement to cash in your RRSPs means that you are now in a lower income bracket, therefore you will pay less taxes, as your RRSPs are only taxable upon withdrawal.

RRSP is an acronym for Registered Retirement Savings Plan. It is not a specific financial product. It is rather a number of investments that are registered with the federal government specifically earmarked for your retirement. The Income Tax Act has a current list of eligible investments from which you can choose; the most popular is mutual funds, guaranteed investment certificates, accumulation annuities , segregated funds, and equities. However, you have a wide range of possible investments to choose from, depending on the financial risk you are willing to take. Some investment choices are quite volatile; they can make you a lot of money, but you must be prepared to take the risk of losing a lot of money. Others are more conservative; you may not make as much, but the risk factor is lower. Talk to your financial advisor about which types of RRSPs are best for your retirement savings plan.

Due to last year's federal budget, Canadians can now contribute to RRSPs until the end of the year in which they turn 71 as long as they are still earning income. This is a 2 year extension from the previous deadline. Once this deadline has been reached, 3 choices will be available:

1. Converted the RRSPs into a Registered Retirement Income Fund (RRIF) which is a tax-deferred retirement plan. Like RRSPs, the RRIF account is registered with the Canadian Revenue Agency. RRIFs are used to generate income from savings accumulated from the previous RRSPs. Once an RRSP has been converted into a RRIF, no further contributions can be made. RRIFs offer an annual minimum withdrawal which is cashed out and sent to the accountholder; this amount is tax free.
2. Purchasing an annuity. This is a good financial idea when interest rates are higher.
3. Cashing out. This is not recommended as taxes will have to be paid on the whole amount.

The 2007 tax year for the first time also offers senior couples the option to split their pension income. They can now allocate up to 50% of their eligible pension income to their spouse/common law partner. This includes company pension plan payments, RRIF payments as well as annuity income. For those who are still working and contributing to their RRSPs, it may be advantageous to contribute to a spousal RRSP if your spouse/partner has either no or little income for the year.

You can "over-contribute" by up to $2000 to your RRSP without being penalized. While you will not be eligible for the tax deduction, you will benefit as the earnings will be tax-free. Consider the option of borrowing money if you do not have the available funds to contribute the maximum amount; you may be able to make more money than you will spend on the interest for the loan. To calculate what your maximum allowable contributions are, use the calculator found at the Canadian Savings Bond website.

It's also important to decide who will be the beneficiary of your RRSP. By naming your spouse/common law partner, dependent child or grandchild, the proceeds upon your death may be tax-deferred even longer. Discuss this with your financial advisor in order to set up the most beneficial plan.