RESP contributions and withdrawals
Registered education savings plans (RESPs) are used to save for a child's post-secondary education. Contributing to the RESP can give you access to government grants, including up to $7,200 in Canada Education Savings Grants (CESGs), which typically require $36,000 in qualifying contributions. The federal government offers a matching grant of 20% on the first $2,500 of annual contributions. You can claim the deficit from previous years, up to $2,500 in annual mortgage contributions. But there is a lifetime limit of $50,000 on beneficiary contributions.
If the child is young and there are many missed contributions, the end of the year may be a warning to catch up before it's too late. The deadline to donate and be eligible to receive government grants is December 31 of the year the child turns 17. And you need at least $2,000 in lifetime contributions, or at least four years and contributions of at least $100 at the end of the year. the beneficiary turns 15, to receive CESGs when the beneficiary turns 16 or 17.
The end of the year can also be a message to withdraw money. Original RESP contributions can be withdrawn tax-free by taking a post-secondary education (PSE) withdrawal. When investment growth and government grants are withdrawn for a child enrolled in eligible post-secondary education, they are called educational assistance payments (EAPs) and are taxable. If the child has a low income this year, taking additional EAP withdrawals from the larger RESP may be a good way to use up their personal tax-free base amount.
RRSP withdrawal, or RRSP-to-RRIF conversion
If you're considering registered retirement savings plan (RRSP) contributions to reduce your taxable income, the end of the year does not bring urgency. You have 60 days after the end of the year to make contributions that can be deducted from your previous year's tax return.
If you are retired or have retired, the end of the year is the time to consider withdrawing an additional RRSP or withdrawing from a registered retirement fund (RRIF). If you are in a lower tax bracket, and you expect to be in a higher tax bracket in the future, you may consider taking additional RRSP or RRIF withdrawals before the end of the year.
If you're 64, you may want to consider converting your RRSP to a RRIF so that withdrawals in the year you turn 65 can be split into pension income. This allows you to deduct up to 50% of your spouse's or common-law partner's tax bill. If you are still working or have variable income, this method may not be the best, as RRIF withdrawals are required every year thereafter.
If you're 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 you turn 71. You can also buy an annuity from an insurance company. You will usually be contacted by a financial institution before the end of the year in which your RRSP was held to open a RRIF.
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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. TFSA room carries over to the next year, so if you don't make a contribution at the end of the year, you can contribute the unused amount next year.
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