2 massive RRSP errors to avoid before buying stocks

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The Canadian people have long had problems with debt and have not had much to show for in terms of savings for a rainy day. The pandemic came in 2019 to turn the world upside down and gave a massive wake-up call to Canadians about the need to have long-term economic goals and the discipline to follow up with them.

The reality check has since encouraged Canadians to take proactive measures to improve their financial positions. Savings in 2021 reached record levels, with the chief economist at Alberta Central reporting that savings in Canada have reached about $ 230 billion. A popular way to get the most out of your savings is to park your capital in tax-favored and registered investment accounts such as the Registered Retirement Savings Plan (RRSP).

Dividend investment is one of the best ways to make use of the contribution space in your RRSP. However, not many people manage to take full advantage of the RRSP because they are abusing their accounts. If you plan to use your RRSP as an investment vehicle for your pension targets, there are a few mistakes that you should avoid making in order to get the most out of your account.

Today, I want to discuss two massive RRSP mistakes you should avoid before buying stocks for your retirement portfolio to get the most out of your account’s tax benefits.

1. Not being aware of contribution deadlines

Ideally, you should use the contribution space in your RRSP to store investments instead of cash. You can deduct your RRSP contributions from your taxable income. However, it is crucial to understand that there is a contribution deadline on March 1 to deduct the RRSP contributions from your taxable income. Be sure to pay RRSP contributions for a given tax year before the March 1st deadline.

2. Short-term investment

Another crucial RRSP mistake that many investors make is investing in the short term. RRSP’s tax beneficiary status is designed for long-term investment. When making your RRSP contributions, make sure you invest money that you will not need soon.

If you make payments from your RRSP, you will permanently lose this contribution space. You also lose the effect of compound growth on your investments because you can not reinvest an amount once you deduct it from your RRSP.

Suitable long-term RRSP inventory

Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) stock could be an ideal asset to buy and hold in your RRSP in the long run to reach your retirement goals. The Scotiabank share is one of the six major Canadian banks. It has a wide range of shareholder dividend payouts. It also boasts the potential to give you significant upside in the coming years through appreciation.

Scotiabank has a growing international segment in the Pacific Alliance countries Mexico, Peru, Chile and Columbia. These countries boast a growing middle-class population, and their economies are expected to grow faster than the G7 countries in the coming years. Scotiabank’s presence in these companies as a preferred lender in the region could translate into significant growth for the bank in the coming years.

At the time of writing, the Scotiabank share is trading at $ 82.68 per share and boasts a juicy yield of 4.35%.

Silly takeaway

Keep in mind that wealth growth from investments made in your RRSP can provide you with tax-free returns as long as your investments remain in your account. Any early payments from your RRSP will be taxable.

You should be careful to remember the RRSP contribution deadlines to effectively claim the tax deductions during the tax season and find long-term purchases and hold assets which could give you reliable returns. Scotiabank shares could be an excellent holding for your RRSP for this purpose.

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