Most people who make RRSP contributions for the 2012 tax year will do so either with periodic payments throughout 2012 or at the last minute in February 2013. There are those who suggest that people should make their 2012 contributions right now to take maximum advantage of deferred taxation. I have my own approach, but I don’t necessarily suggest that others should follow my lead.
I agree with those who say that last-minute contributions are less than optimal. At the same time, I don’t like making a contribution until I’m certain that I’ll use the deduction the next time I file my income taxes. Consider the following potential sequence of events.
- I make a large RRSP contribution today.
- Tomorrow my boss decides he’s tired of me and fires me.
- I decide to drift into semi-retirement and never make a large income in any one year again.
RRSP contributions work best when they are deducted against income that is taxed at a high marginal rate. I haven’t made enough money yet this year to get into the higher tax rates. And I prefer not to make a contribution just assuming that I will have a high income in some future year.
So, my strategy is to wait until I’ve earned enough this year that I’d want to make an RRSP contribution even if I never made another cent until next year. The result is that I tend to make my RRSP contributions in the spring or summer. Then I fill out a T1213 form to get my payroll taxes lowered for the rest of the year.
Much of my financial decision-making takes into account very negative possible outcomes. Some may say that it’s not worth delaying an RRSP contribution for fear of being fired, but I consider a few-month delay to be a very minor cost to protect against the case where I lose my job after I make an RRSP contribution I wish I hadn’t made.
This line of reasoning works for me in my circumstances, but I doubt that it applies to many other people.