Do you want to boost your 2023 tax refund with Registered Retirement Savings Plan (RRSP) contributions? If so, you have just two more days to do it. The RRSP contribution deadline for the 2023 tax year is rapidly approaching. Your final RRSP contributions will have to be made by this deadline; otherwise, you will have to roll over your last contributions to next year.
RRSP deadline: February 29
This year, the RRSP contribution deadline is February 29, which is a mere two days from today. The 2023 deadline is a little earlier than the 2022 deadline. Usually, the RRSP contribution deadline is March 1 or March 2. This year’s early deadline makes it very easy to forget to make your last RRSP contribution on time. So, be sure to mark the calendar. If you’re just one day late, your contribution will count for 2024 rather than 2023!
What to do with your RRSP contribution
Once you’ve made your RRSP contribution for 2023, you need to know what you’re going to invest it in. If you have a “mutual fund RRSP” with your bank, you may already have an asset that your RRSP money goes into by default. If so, you don’t need to think about what the money in that RRSP is spent on. You may wish to look at the performance and fee structure of the fund your RRSP is invested in, though. If it is performing badly or has very high fees, you may wish to open a self-directed RRSP and invest in better assets.
What are some good assets you can hold in a self-directed RRSP?
Guaranteed Investment Certificates (GICs) would be the go-to. They are bond-like investments offered by your bank. These typically yield about 5.10% these days, meaning that a $100,000 GIC investment pays back $5,100 at the end. The inflation reading for January was just 2.9%, which means that GICs have been delivering positive real returns over the last 12 months.
Another option is index funds. Index funds are stock portfolios that trade in the form of securities, much like stocks themselves. They are based on broad market indexes, which track the stock markets of entire countries. So, you can invest in the entire TSX composite index or the entire S&P 500 through an index fund.
Individual stocks in RRSPs
A final category of asset you can hold in your RRSP is individual stocks. Individual stocks are often quite profitable for experienced investors who are prepared to do the work needed to research them. Individual stocks are exposed to more company-specific risk than indexes are; a corollary of this is that they have more potential for “alpha,” or returns exceeding market returns. If you are a sophisticated investor, you may wish to hold some individual stocks in your portfolio.
Toronto-Dominion Bank (TSX:TD) is one bank stock that is well suited to the RRSP’s characteristics. It is a dividend stock, which means that it pays regular cash income. It’s a systemically important bank (SIB), which means that it enjoys more government support than smaller banks. Finally, it is one of Canada’s oldest financial institutions, with a history tracing back over a century. In that whole period, it hasn’t once been at serious risk of failing. In fact, it has grown its revenue and earnings at an impressive pace.
I’ve held TD Bank stock in my RRSP for many years now. The dividend income has been very dependable, and I’ve even seen some capital gains. TD Bank is known for its conservative lending rules and its highly profitable U.S. retail business. These characteristics make TD a fairly safe bank that also has a lot of growth potential.
