Year End Checklist

This is the time of year that we are reminded that time flies incredibly fast. The Christmas season has already started and it won't be long before we will wrap up another year.

While many of our investment portfolios have taken setbacks, keep focused on the reality that bull markets always follow bear markets and that time and patience are the keys to success in this type of market.

The other reality is that good financial decisions far outweigh good investment decisions. Every year at this time, I offer my year end checklist.

Convert RRSP.

If you turn 71 this year, you need to convert your RRSPs into either an annuity or a RRIF. It does not matter whether you turned 71 back in January or you turn 71 on December 31. As long as you turned 71st birthday thisyear, you must convert the RRSP.

Related article: Everything you need to know about RRIFs

Most financial institutions are pretty good at letting you know that you must convert the RRSP to a RRIF. In fact, many financial institutions will automatically convert the RRSP to a RRIF to avoid taxes. However, it is better not to take a chance.

Related article:  How to convert your RRSP to income

Spousal RRSP contributions.

If you are investing in spousal RRSPs and you may need to make withdrawals in the near future (for retirement for example), you might consider making the RRSP contribution in December as opposed to January or February to help get around the 3-year attribution rules.

Investing in a spousal RRSP in December 2014 means you might be able to take money out of the spousal RRSP in January 2017. Deferring the contribution by only 1 month to 2015, means that you must wait an extra year (January 2018) before you can withdraw the money to avoid attribution of income. A one month difference in the contribution date can make a year’s difference in taxation of income.

Related article:  Do spousal RRSPs make sense?

One word of caution is that a contribution to a spousal plan in future years will extend the attribution dates. Attribution is based on the latest contribution to any spousal plan.

Contribute to the RESP.

Unlike the RRSP deadline, which is 60 days after the end of the year, the RESP deadline is December 31.

Back in 1998, the government introduced the Canada Education Saving Grant (CESG). Basically for every dollar contributed to an RESP up to a maximum of $2000, the government would contribute 20% into the RESP ($400). In 2007, the government increased the maximum contribution eligible for the CESG from $2000 to $2500 per child which also increased the maximum grant to $500 per year.

Related article:  RESP carryforward rules

In the event that you have not maximized your RESP contributions in past years, you can catch up one year at a time. The rules state that there is no annual contribution limit to the RESP but there is a lifetime limit of $50,000 per child. On that basis, you could contribute $5000 to the RESP and get $1000 of the CESG if you are catching up from previous years.  You could contribute more than $5000 but you would not get more than the $1000 CESG.

Related article:  Understanding RESP Contribution rules

The timing could not be better. An RESP may make the perfect Christmas gift this holiday season.

Tax Loss Selling.

Market Volatility can create opportunities for tax losses. If you have not capitalized on tax loss selling, you many want to see if there are opportunities within your non-RRSP investments.  Tax loss selling does not apply to investments inside the RRSP or the TFSA.

In order to trigger your capital losses, you will need to sell any investments where the market value is lower than the adjusted cost base. Any sale triggers a disposition and qualifies as a capital loss. Remember that there is a superficial loss rule, which means that if you buy back the same original investment within 30 days, your capital loss will be disallowed.

Related article:  What is tax loss selling?

Charitable contributions.

To claim your charitable contributions for a tax credit for 2014, you will need to make that contribution by December 31, 2014. There are no shortages of organizations looking to get your donation dollars. Make sure you get a tax receipt to qualify for the tax credit. If you haven't got the cash, consider a gift-in-of your stocks or mutual funds (outside the RRSP).

Related article:  Giving to your favourite charity

Defer investing (non-RRSP).

If you are thinking of putting some money away into investments outside of the RRSPs before the end of the year, think twice. You may be better off waiting until January. For example if you buy a GIC, you can defer the interest you pay by a full year simply by waiting a month. You are required to report the accruing interest income annually in the year in which the anniversary falls. So, if you wait until January 2015, you'll push that tax bill off until 2016.If you are thinking about buying a mutual fund, you might be better off waiting until January to avoid the taxable distribution.

This year end checklist is not exhaustive of all the strategies that exist but represent some of the most common opportunities for good sound financial strategies with a December 31st deadline.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

4 Responses to Year End Checklist

  1. There is no annual limit for RESP contributions. Each year, the first $2500 is eligible for the 20% CESG and accumulated grant room from previous years can be accessed also up to $500. A person could contribute more than the $5000 required to maximize the grant (providing there is accumulated grant room) but a maximum of $1000 grant will be paid in any year. The link to your older RESP article has more accurate information.

  2. I love the idea of a year-end checklist like this. I think I am going to create one for myself and others in the US. I learned quite a bit about Canadian retirement accounts thanks to this post as well! Though I admit, I had to go look out what a RRSP and a RESP is. Now I know! I’ve been having more and more Canadian viewers lately, so I would love to write more about Canadian financial accounts.

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