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Contribute at the Beginning of the Year
You can make an RSP contribution anytime up to 60 days after the end of the year. But it doesn’t pay to wait.
- You are more likely to maximize your savings if you contribute at the start of the year or even on a systematic monthly basis – than if you rush around at the last minute.
- Contributions made at the beginning of the year benefit from up to 14 months of additional tax-free compounding. In the example below – which assumes a 6% average annual return – both contributors put in the same total amount, but one does so at the beginning of each year while the other waits until the end. The result: 30 years later, the early bird ends up with an additional $33,000 accumulated in his/her RSP.
Remember, too, that cash held outside your RSP typically earns a low rate of interest that is fully taxed. Cash put into your RSP can be invested with a longer-term mindset, so it will likely earn more – and those earnings will compound tax-free until withdrawn.
Obviously, the higher your contribution, the more there is to gain from putting it into the RSP as soon as possible.
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$5,000 Annual Contributions Made at
Beginning of Year vs. End of Year
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After
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Start of
year accumulation
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Last minute accumulation
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Difference
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10 years
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$69,858
|
$65,904
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$3,954
|
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15 years
|
123,363
|
116,380
|
6,983
|
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20 years
|
194,964
|
183,928
|
11,036
|
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25 years
|
290,782
|
274,323
|
16,459
|
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30 years
|
419,008
|
395,291
|
23,717
|
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35 years
|
590,604
|
557,174
|
33,430
|
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