“It ain't over 'til it's over” I recently met with Sue, a client who turned 69 in October. Sue, however, still works full time in the family business and was concerned that she must convert her RRSP into a RRIF by year-end (since this is the year she turns 69). Sue was not sure exactly how to proceed. Sue had made her RRSP contribution for the 2006 tax year recently, and wanted to know if she could make an RRSP contribution for 2007, because she has earned income for 2006 (income of over $106 ,000). Was the game over? Had the government won, and now Sue must start to take money out of her RRIF next year and pay tax on it? Is there a way Sue may stay in the tax deferral game? I reviewed my playbook (good ideas and strategies I read about – I call it research – in my University days at WLU (http://www.wlu.ca/) they called it plagiarism) and we decide to use the over-contribution strategy to extend the tax deferral game. Last Chance RRSP Over-Contribution Strategy: 1) Since Sue is working in 2006, she is creating RRSP room for 2007 ($19 000), but she will no longer have an RRSP in 2007 to contribute to. (the maximum RRSP for 2007 is $19 000 or 18 % of income, whichever is less) 2) To get the RRSP deduction for 2007, Sue can over-contribute ($19,000) to her RRSP in December of this year (she has already made her RRSP contribution for 2006 This must be done before she converts her RRSP to a RRIF. 3) Since this is an over-contribution, the government will apply a fine of 1% per month, based on the amount she is over her contribution limit. Everyone is allowed to over-contribute by $2,000 – so she will only be over the limit by $17 000 ($19 000 - $2,000) for the month of December. The fine will be $170. 4) In January 2007, Sue now will have RRSP room again, so she will no longer have an over- contribution penalty. 5) Sue will be able to deduct the over-contribution she made in December 2006 for her 2007 tax return. The benefit to her is that she will save $8,7400 (at the top marginal tax rate) on her tax return in 2007 for the cost in penalties of $170. This sounded like a good plan to her. Spousal Over-Contribution Since Sue is a widow, she does not have this option, but if you are over the age of 69 and have earned income, you may contribute to a spousal RRSP and get the tax deduction. As long as your spouse is age 69 or younger, you may continue to contribute to a spousal RRSP despite your age. Extend the tax deferral game. Yogi Berra said, “It ain't over 'til it's over” (www.yogi-berra.com) and when making RRSP contributions, it may not be over at age 69. For further details contact Jack Lumsden, Financial Advisor, Assante Financial Management Ltd, 100 – 4145 North Service Road, Burlington, Ontario L7L 6A3 Phone: (905) 335 2598 or email : firstname.lastname@example.org The opinions expressed are those of the advisor and not necessarily of Assante Financial Management Ltd.