How to open tax-free RRSP plans

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Written by Colleen O’Connell-Campbell

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As the annual deadline for registered retirement savings plans approaches, now is a good time to explore how RRSPs and other financial strategies can work for you and your family.

Whether your goal is to save tax, adjust income or build a financial legacy, RRSPs and instruments such as spousal RRSPs and individual pension plans (IPPs) offer unique benefits. As a business owner with strong cash flow, these tools are designed to help you maximize your income and secure your financial future.

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Here’s a guide to help you navigate some of the nuances of retirement and tax planning for owner-managed businesses before the March 3 deadline.

Building wealth while saving taxes

An RRSP is not just a retirement tool; it’s your tax-efficient strategy. Contributions reduce annual taxable income, potentially moving you into a lower tax bracket, while investments within your RRSP grow tax-deferred until withdrawn. This is especially beneficial if your income varies from year to year.

If you pay yourself a T4 salary through your organization, contributing to an RRSP is an important strategy. For example, in 2024, the contribution limit is 18 percent of your 2023 earned income, up to $31,560. These deductions can reduce your taxable income while contributing to a structured savings strategy.

Planning ahead is equally important to maximizing your RRSP benefits. For the 2025 tax year, your contribution limit remains at 18 percent of the earned income reported on your 2024 tax return, with a maximum of $32,490.

By reviewing your income and available RRSP room in advance, you can align contributions with your cash flow and maximize your tax benefits.

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A solution for high income business owners

If you’re over 40 and paying yourself a steady T4 income, an IPP can unlock even greater tax savings and retirement contributions. Like a defined benefit pension plan, an IPP allows for contributions that exceed RRSP limits, especially as you approach retirement, and has several other benefits:

• Maximum contribution limits: An IPP allows your eligible contributions to grow over the years. For example, at age 60, you can annually contribute up to $51,677, compared to $31,560 for an RRSP.
• Business tax deduction: All IPP contributions, whether for past or future service, are tax deductible to your business, reducing your taxable income.
• Intergenerational planning: IPPs make it easier to pass on wealth to the next generation, tax-deferred, if you run a family business.
• Creditor protection: Funds in your IPP are usually protected from creditors, giving you extra peace of mind.

If your cash flow supports it, an IPP can be an important part of your financial strategy. Talk to both your financial advisor and your accountant to determine if it’s right for your goals.

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Estimating a spouse’s retirement income

If you’re married or in a civil partnership, a spousal RRSP can help you balance your taxable income in retirement. The focus is not on accumulating equal assets, but on estimating the taxable income you and your spouse will draw in retirement.

For example, by contributing to a spouse’s RRSP, you can claim a deduction now, while your spouse pays taxes on withdrawals later, probably at a lower rate.

You should also consider all sources of future income between you and your spouse to ensure that you are strategically directing contributions between each of your RRSPs and/or your spouse’s RRSPs to balance future income streams.

Ask yourself how defined-benefit pension plan payments, Canada Pension Plan and Senior Security benefits, rental income, benefits and benefits from selling your business when you exit will affect your cash flow in retirement. Planning with these factors in mind will help improve your overall financial strategy.

Your freedom bag

If retirement sounds too abstract, think of your RRSPs, IPPs and other strategies as a “freedom fund.” This fund provides financial independence and gives you the power to make choices, whether it’s to downsize, pursue other businesses or just enjoy life.

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Match your fund to your future cash flow needs, including RRIF withdrawals, retirement income splitting, and other tax-saving strategies.

Remember: it’s not about how much money you save, it’s about creating income streams that align with your life goals.

RRSP season isn’t just about meeting deadlines; it’s about creating a strategy that supports your financial future. As a business owner, you have unique opportunities to leverage RRSPs, IPPs and spousal RRSPs for maximum tax benefits and long-term stability.

By adopting these strategies — and planning ahead for future contributing opportunities — you can turn RRSP season into a cornerstone of your wealth-building journey. You will empower yourself and your family for years to come.

Colleen O’Connell-Campbell is a wealth advisor at RBC Dominion Securities Inc. and is the host of the Cash-Rich Exit Podcast.

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