Year-end tax and financial planning considerations

RESP Contributions and Withdrawals

Registered Education Savings Plans (RESPs) are used to save for a child’s postsecondary education. Contributing to an RESP can give you access to government grants, including up to $7,200 in Canada Education Savings Grants (CESGs), typically requiring $36,000 in eligible contributions. The federal government offers 20% matching subsidies on the first $2,500 in annual contributions. You can make up deficiencies from previous years, up to a maximum of $2,500 in annual catch-up contributions. But there is a $50,000 lifetime limit on contributions from a beneficiary.

If a child is a teenager and there are a lot of missed contributions, the end of the year can be a wake-up call to catch up before it’s too late. The deadline to contribute and be eligible for government subsidies is December 31st of the year the child turns 17. And you need at least $2,000 in lifetime contributions, or at least four years of contributions of at least $100 by the end of the year. the beneficiary turns 15 to receive CESG in the years in which the beneficiary is 16 or 17 years old.

The end of the year can also be a warning for withdrawals. Original contributions to an RESP can be withdrawn tax-free through postsecondary education (PSE) withdrawals. When investment growth and government subsidies are withdrawn for a child enrolled in eligible postsecondary education, they are called educational assistance payments (EAPs) and are taxable. If a child has a low income this year, taking additional EAP withdrawals from a large RESP can be a good way to use up their basic tax-free personal amount.

RRSP withdrawals or RRSP to RRIF conversion

If you’re considering contributions to registered retirement savings plans (RRSP) to reduce your taxable income, the end of the year doesn’t bring any urgency. You have 60 days after the end of the year to make contributions that can be deducted on your previous year’s tax return.

If you are retired or semi-retired, the end of the year is a time to consider additional withdrawals from your RRSP or registered retirement income fund (RRIF). If you’re in a low tax bracket and expect to be in a higher tax bracket in the future, consider making more RRSP or RRIF withdrawals before the end of the year.

If you are 64, you may want to consider converting your RRSP to a RRIF so that withdrawals in the year you turn 65 can be eligible for pension income sharing. This allows you to transfer up to 50% of your withdrawals to your spouse or partner’s tax return. If you are still working or have a variable income, this approach may not be the best since RRIF withdrawals will be required every year thereafter.

If you are 71, the end of the year brings some urgency because your RRSP needs to be converted to a RRIF by the end of the year in which you turn 71. You can also purchase an annuity from an insurance company. Typically, you will be contacted before the end of the year by the financial institution where your RRSP is held to open a RRIF.

TFSA Contributions

For those who invest or save in a tax-free savings account (TFSA), the end of the year is not a significant event. The TFSA room carries over to the following year, so if you don’t contribute by the end of the year, you can contribute the unused amount next year.