Only weeks are left before the March 1 RRSP contribution deadline, and financial advisors can use the remaining weeks to help clients maximize the tax-efficiency of their RRSPs.

Jamie Golombek, managing director of tax and estate planning for CIBC, has outlined a number of tips to consider when advising clients on RRSP contributions.

“When investing for retirement, no other registered plan offers tax advantages as compelling as the RRSP,” says Golombek. “Your annual RRSP contribution not only goes toward reducing the amount of tax you pay on income but your qualified investments grow tax-deferred within the plan until withdrawal, when you may be taxed at a lower rate.”

1. Know your clients’ contribution limits

As RRSP contributions are 18% of an individual’s earnings from the prior year, the amount of income needed in 2009 to generate the maximum contribution room of $21,000 is $122,222. Looking ahead, the RRSP contribution limit for 2010 has been increased to $22,000.

While in recent years, RRSP contribution limits have been increasing by $1,000 per year, 2011 will mark the first year that the RRSP limit increase will be indexed to inflation, at $22,450, generated when 2009’s income is at least $124,722.

2. Help clients leverage a Spousal RRSP

Higher-income earners can take advantage of their spouse or partner’s lower tax rate once they begin withdrawing from their RRSP in retirement by contributing to a Spousal RRSP now. Higher-income contributors receive a tax deduction for contributions made to their spouse or partner’s plan and spousal contributions do not interfere with the other spouse’s or partner’s own RRSP limit.

But advisors should remind clients that a Spousal RRSP does not allow an individual to exceed their personal RRSP maximum contribution threshold, which can be allocated between the individual’s own account and that of their spouse.

3. Remind clients that RRSPs are for more than retirement

RRSPs can be used to invest in financial goals other than retirement, such as education or a first home. First-time homebuyers can withdraw up to $25,000 tax-free from an RRSP under the Home Buyers’ Plan and can repay the funds, interest-free, over a 15-year period. Failure to repay, however, will cause the amount to be included in income.

Under the Lifelong Learning Plan investors can also withdraw up to $10,000 in a calendar year and up to $20,000 in total from an RRSP to help pay for training or education for yourself or your spouse or partner. The LLP withdrawal must also be repaid, over a 10-year period, to avoid having it included in income.

4. Encourage clients to contribute early, and contribute often

If clients can afford to contribute to an RRSP, ensure that they do so. It’s never too early to start contributing, since the more time clients give their plan to grow, the better.

Many investors find it much easier to make small but regular contributions than to come up with large lump sums annually. Consider setting up a regular investment plan for clients to ensure that contributing to their RRSPs is a priority all year long.

After your clients make their RRSP contribution, encourage them to apply to the CRA using Form T1213 for a reduction of payroll tax at source. By doing so, they can benefit from tax reduction throughout the year on each paycheque, instead of waiting until they file their tax return in the spring of 2011.

IE