Personal tax deductions: Retirement plans

It’s not news, but it ought to be emphasized: One of the best ways to save for your retirement is with a registered retirement plan. That may be a 401K or IRA(in the U.S.) or an RRSP (in Canada) or another instrument in other jurisdictions. These plans can reduce your current-year tax bill, making them a very tax-efficient way to save for the future.

Plan your contributions so that you get the greatest tax benefit possible. In a year where you make a lot of money you may want to make the maximum contribution; in a down year you may want to consider a smaller contribution or no contribution at all, so that you can make a larger contribution in a future year when the tax savings will be much greater. That doesn’t mean you have to avoid saving for retirement in a down year; you may simply want to put the money in a non-registered investment.

Proper communication and planning between your investment advisor and your accountant is very important if you’re going to maximize your tax deductions over the long run. So whether you are putting money aside every month or making a lump-sum investment, you should track these expenses in Wave and ensure that your accountant is aware of them when preparing your tax return.

Wave Accounting provides this information as a guide to get you started. When it comes to actually reporting financial details to the government, you should check with your accountant or reference the rules in your jurisdiction to see how they apply to your unique situation.