The shift away from one-time contributions toward regular, year-round investing can help investors avoid risks associated with market timing and maximize their time in the stock market.Natee Meepian/iStockPhoto / Getty Images
RRSP season – usually defined as the 60 days leading up to the March 3 contribution deadline – is dwindling in popularity in favour of people making year-round contributions.
Instead of clients scrambling to make a one-time, lump-sum payment during RRSP season, certified financial planners such as Jason Heath said most of his clients contribute to their RRSPs throughout the year.
“The emphasis on January and February being our RRSP season is in the past,” said Mr. Heath, the managing director of Objective Financial Partners.
The shift away from one-time contributions toward regular, year-round investing can help investors avoid risks associated with market timing and maximize their time in the stock market.
“If [RRSP season] dies a slow death and becomes less of a thing, I don’t think that’s necessarily a bad outcome,” Mr. Heath said.
Mr. Heath recalls his early days working at a bank when January and February were marked by heavy marketing campaigns promoting RRSPs. But today, there’s less fanfare.
“There’s not as much buzz around RRSPs,” he said.
One reason is the decline in physical bank visits. With the rise of online banking and do-it-yourself investing, fewer people interact with bankers face-to-face, reducing the pressure to make last-minute contributions, Mr. Heath said. Another factor is competition.
Before 2009, RRSPs were the “only game in town” for Canadians, with many making a single annual deposit, Mr. Heath said. But the introduction of the tax-free savings account and, more recently, the first home savings account, has shifted how Canadians save. By 2014, the average contribution to TFSAs exceeded those for RRSPs.
Anita Bruinsma, certified financial planner and owner of Clarity Personal Finance, said that she has also seen a rise in employers offering group RRSP plans, where people have RRSP contributions automatically withdrawn from their paycheques.
Financial planners see advantages to making smaller, regular contributions throughout the year rather than a single, large payment.
Spreading out investments offers more time in the market, meaning more compound growth, and it reduces exposure risk, said David Field, a certified financial planner and founder of Papyrus Planning.
Regular contributions can make saving more manageable by splitting it up into smaller parts while also lowering the temptation to spend the money elsewhere, Mr. Heath said. Additionally, smaller, consistent contributions help investors avoid missing the RRSP deadline altogether.
If you do make regular RRSP contributions, you can reduce the tax deducted by your employer, Mr. Field said. To do this, you can submit form T1213 to the Canada Revenue Agency. If approved, the CRA authorizes your employer to reduce the tax withheld from your regular paycheque.
While regular contributions work well for many, it’s not the best fit for everyone. For people with unpredictable or fluctuating incomes, consistent contributions may be challenging, Mr. Field said. Others, such as those who receive large annual bonuses close to the RRSP deadline, might top up their contributions with a larger lump-sum payment closer to the deadline, he said.
Mr. Heath advises people who are interested in contributing to their RRSP throughout the year to set a reasonable monthly contribution amount that aligns with their budget and financial goals. Automating these payments can make the process easier.
But he also warns to not “just blindly contribute to your RRSP,” without considering other options. In some cases, a TFSA or FHSA is a better option for people, especially if they are in a lower income bracket.
“You want to make sure you’re paying the least amount of lifetime tax, not just paying less tax this April.”
