As a small business owner, you want to bring the same careful forward-thinking planning to your retirement objectives as you do to your business objectives. With that in mind, these strategies have the potential to enhance the performance of your RRSP.
Contributing the maximum. You can contribute up to 18% of your previous year's earned income to a maximum of $24,930 (less any pension adjustment) for the 2015 taxation year, rising to $25,370 in 2016. To reach the maximum $24,930 contribution limit for 2015, you would need to have earned income of $138,500 in 2014 (that is, $138,500 x 18% = $24,930). Earned income can include salary you received from your company or net business income you earned from your unincorporated business. Unused RRSP contribution room from prior years and pension adjustment reversal can increase the maximum amount you can contribute to your RRSP. Remember, you have until March 2, 2015, to make your contribution for the 2014 tax year.
Diversifying. Whether you're investing inside or outside a registered plan, diversification remains one of the most effective ways to improve potential performance and decrease volatility. In addition to being diversified across the three main asset classes (cash, fixed income, and equities), you may want to diversify geographically.
Income splitting with your family. If you run a family business, you can pay your spouse and children a reasonable salary for duties they perform in the business. This earned income, which is usually tax-deductible for your business, may generate contribution room for their own RRSPs (keeping in mind their pension adjustment, if any). Even if your children are still in their teens, and don't have an RRSP, the accumulated contribution room can be carried forward into their adult years and used to make contributions that may reduce taxes.