I DUN GOOFED

At the end of February I was very well aware that I needed to buy some RRSPs before the end of the tax year. For those who don’t know, RRSPs are tax shelters and optionally, can be investment vehicles over the course of time. From a personal standpoint, I am also required to buy RRSPs as repayment for the Home Buyers’ Plan.

Now RRSPs can come in many different flavours but my preferred choice over the years have been mutual funds. They offer a diversified portfolio in a single product and at least to me, they seem easy to research. So there I was about to buy some mutual funds for an RRSP contribution. Now as I was looking at which account to put these mutual funds in, I must have just gone totally stupid for a minute and decided to put the mutual funds in a tax-free savings account. Now I know a TFSA account is different from an RRSP account. I know that now and I knew that back then. So I’m still wondering how I managed to be so stupid and put the mutual funds into the wrong account.

I didn’t realize the error of my ways until this week, nearly two months after the RRSP deadline had passed. There are several consequences to my blunder. First, this caused me to have not purchased a single dollar of RRSP investments for the 2013 tax year. This means the amount of tax credits I have for the previous year will be miniscule. Almost none of my income will be sheltered from the tax man. Second, because I was required to repay some of my RRSP through the HBP and failed to do that, about $750 will be added to my 2013 income and that’s taxable income by the way. This compounds the first problem where I have no tax shelters at all this year.

All this means is that I’m almost positive that I will have to pay additional taxes this year after I do my income tax return. I’ve only had to pay additional taxes once in my entire life. That year was a crazy exception when I received a huge severance package from EA and then started working almost right away, effectively doubling my income for several months. Sadly, this won’t be the reason why I’ll be paying more taxes this year.

I encourage you to double-check your financial situation in January to ensure that you’ve taken care of all your responsibilities before the tax year comes to a close. Had I noticed in time, I would have just bought actual RRSP investments in addition to the funds I put into my TFSA account. Money wasn’t even an issue! Now, I’ll literally be paying for my stupidly. Don’t be like me folks!

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