"Parking" your RRSP Contribution

You may have heard this term thrown around (and probably towards the latter half of February every year in particular). It refers to the fact that if you have procrastinated to the point where you don’t have time to make an informed investment decision with any funds you plan on contributing to your RRSP before the RRSP contribution deadline, you can just put the money into your RRSP account as cash (or in a money market mutual fund) to beat the deadline, and then make the investment decisions later – when you might have more time to do so.

QuestionMark.jpgThis is quite common actually, as many people will contribute on the very last day possible (the 60th day of the new year) – similar to the propensity of people to file their taxes on the very last day possible too!

By "parking" your RRSP contribution – and hence, beating the contribution deadline – you will be able to claim the contribution on your upcoming tax return you will be filing a few months later. As such, you will be able to reduce your overall tax bill – and hopefully get a healthy tax refund in short order.

Certainly, there have been many people who have waited until the last minute, mistakenly thought they had to also make the long term investment decisions at the same time (which might take a while to figure out) and for fear of rushing into a wrong decision, neglected to make the contribution to the RRSP.

This is not a reason to miss the contribution deadline. All you have to do is instruct your financial institution to deposit funds to your account – if it is a self-directed RRSP it will show up as cash. If it is a managed RRSP – it might go into a money market mutual fund. In either case, you will want to put it into a very safe and liquid investment that can be changed anytime in the future.

Once you DO have the time to sit down and decide what the long term investments will ultimately be for those funds, you can make the necessary changes or investments anytime – no deadlines. (Just be sure not to wait too long – cash or money market mutual funds will not keep up with inflation and hence will lose purchasing power if it just sits there TOO long! :) ) 

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Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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