You are probably sick of hearing the word RRSP from every source possible over the last couple of months. It’s that time of the year – RRSP season. What is the RRSP season? If you make your RRSP contribution for 2008 in the first two months of 2009, you can receive your tax refund in just a couple of months once you submit your tax return. This means that every $1,000 invested in an RRSP will reduce your net spendable income by only about $600.

Many employees receive year-end bonuses and want to put the money into an RRSP before the deadline. This deadline, however, doesn’t make much sense if you are making pre-authorized monthly deposits on a pre-tax basis, which is possible with most employer-sponsored plans. If you want to save more than your employer plan allows, in most cases it is not recommended to invest everything in RRSP. Registered money is not easily accessible. Therefore, put some in a Tax Free Savings Account (TFSA) or a non-registered investment.

If you still want to contribute to RRSP and have contribution room (found on your last Notice of Assessment), there are a few things to keep in mind. Just like with TFSA, an RRSP is not a type of investment, as commonly believed. Cash and equivalents, government securities, stocks, bonds, mutual funds and many other assets can be part of an RRSP account. The difference is in the tax status — all investment income is tax free, contributions are tax deductible, pre-retirement withdrawals are penalized and, after retirement, all withdrawals from a registered plan are fully taxable. The type of investments inside your RRSP should depend on your risk tolerance (higher returns require higher risk), and even more on your time horizon.

If you are not retiring until 20 or 30 years from now, you can accept much more volatile returns than someone who is retiring in five years. Riskier portfolios usually outperform safe investments long term, but not always short term. You can also “borrow” funds from your RRSP to make a down payment on your home or to pay for your education. There are certain rules around these transactions. If this is what you intend to use your RRSP for, your investment choices should be limited to safe, non-volatile assets.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.