RRSPs are Vital to Business Owners and Self-Employed

Working for yourself has many benefits along with many challenges. As we approach the height of RRSP season, the self-employed are reminded that the onus in squarely on their own shoulders to provide for their retirement, a task that often gets overlooked in favour of putting available cash towards growth of the business.

With new data released from Stats Can suggesting that the number of Canadians who are becoming self-employed is on the rise, it bears some focus for those individuals to plan in the moment to supply funding- not just for the future of their business, but for the future of their retirement.

The data shows that fewer entrepreneurs feel financially prepared for retirement than salaried employees; furthermore, nearly half of the self-employed feel that saving for retirement comes down to an either or scenario.

“Small business owners often find themselves torn between investing in their business and saving for the future," said Cathy Pin, Vice President, Commercial Banking, BMO Bank of Montreal. "Although it's tempting to concentrate on investing in your business, it's critical for entrepreneurs to have personal retirement savings as well, since they can't rely solely on the future value of their business to provide for their retirement."

There are many tax advantages for small business owners that should incentify them to consider taking a more active role in RRSP planning.

RRSP investments grow faster, typically, because of tax-deferral options.
According to BMO, “Small business owners will also experience tax benefits when they make RRSP contributions. For unincorporated small enterprises, money made in the business is considered personal income; RRSP contributions will reduce the business owner's taxable income for the year of the contribution.”

"Similar to the plans you make in order for your business to succeed, how you plan to fund your retirement needs to be considered as well. Even if your business meets all of your financial needs in retirement, the money you save and invest in an RRSP can supplement your income for a more comfortable retirement," said Tina Di Vito, Head, BMO Retirement Institute and author of 52 Ways to Wreck Your Retirement…and How to Rescue It. "Adding an RRSP to your retirement income plan is one of the best ways to save, offering tax-deferred compound growth that can give small business owners a safety net as retirement approaches."

In some ways, it is more crucial for the self-employed to actively contribute to their RRSP’s than for salaried employees, because the self-employed may be more vulnerable to economic downturn- and more in need of nest egg.