Strategies for playing catch-up if you simply can’t afford an RRSP contribution this year

Your RRSP contribution room carries forward indefinitely — so don’t sweat it if you simply can’t make a contribution this RRSP season before Feb. 29. You can contribute next year or the year after and so on. And, you’ll earn more room every year that you work.

There are two easy ways to find out your RRSP contribution room. First, log in to the Canada Revenue Agency My Account portal. Your available room will be displayed along with other tax forms (especially helpful if you have misplaced T-slips). Second, locate your most recent Notice of Assessment (also available for download in your CRA My Account portal) and your available room will be displayed on that document.

Here are a few RRSP catch-up strategies for when the time is right.

Automate regular RRSP contributions, even if they seem small

These amounts can be tailored to what you can afford and in a frequency that works well for you, like weekly, biweekly or monthly. You can set up these automatic contributions through your investment provider, so you don’t have to remember to transfer the money yourself.

Let’s say your budget allows for you to contribute $400 per month to your RRSP for the next 30 years at a rate of return of 6.5 per cent (after fees). The total value of your RRSP investments will grow to about $425,000 over that time. Impressive, right?

Think about what level of contribution you can fit into your budget going forward. You may need to trim back on one aspect of your budget to make room for this. Now set it up.

As your income grows, you can increase these regular contributions.

Participate in work retirement savings plans

Many employers offer retirement savings programs, like Group RRSPs or defined contribution plans, as a part of their benefits package — and they are often voluntary. In many cases, there are matching benefits, whereby if you contribute a certain amount, the employer will contribute a certain amount as a free match.

I think of this “matching money” like getting a raise. All you have to do is participate in the retirement program, and the match happens automatically. Reduced investment management fees are another typical perk; it’s because employers negotiate these on behalf of their employees. They can be easy to register for and when you do, select a percentage if you can, (rather than a dollar amount) to be deducted from your pay cheque, that way as you earn more, your contributions increase automatically. Note that if you contribute to a pension plan through work, those contributions use up your allowable RRSP contribution room.

Be careful with loans and lines of credit

Plenty of folks turn to borrowing to make sizable lump-sum contributions to their RRSPs. Heck, you might even be automatically approved for an RRSP loan and it’s just sitting in your online banking portal ready for you to accept the offer.

Careful! Due to current high interest rates, RRSP loans and lines of credit used for “topping up” RRSPs are expensive and the debt might not be worth carrying. You should speak to your financial adviser to help you understand if this solution is right for you.

My advice is if you can’t pay it off within 12 months (including by way of applying any tax refund you get to the balance owing), hold off.

Before turning to a loan, explore other ways to raise money for a future RRSP contribution. If you receive a bonus or a tax refund this spring, you could tuck that money into your RRSP. Cut out unnecessary costs. File lingering benefits claims and do your invoicing. Purge and sell things from your home you’re not using.

You can still take positive action on your RRSPs even if you can’t afford to contribute.

Performance management is key! Review how your RRSPs are performing, and if you aren’t happy with the returns, address it with your financial adviser or get independent advice on what needs to change in your portfolio. If you’re not happy, use this time to make changes.

You may also use this time to learn more about the kinds of assets your RRSP money is invested in; ETFs, mutual funds, stocks, bonds, etc. Some investments have an automatic reinvestment option that could be worth exploring. So, as returns and interest are accrued, they could be reinvested.

If you’ve had to hit pause on your RRSPs, it’s probably not a forever thing. Reassess every three months to see if it’s time to hit the resume button again. The sooner you get back to it, even if it’s at a much smaller contribution level, the better prepared for retirement you’ll be.