TORONTO - Time is running out to contribute to a registered retirement savings plan for the 2008 tax year, and analysts say it appears the average contribution will be smaller this year as investors respond to market turmoil and a new option of the tax-free savings account.
  
A recent Ipsos Reid poll indicated that, while there will likely be more contributions to RRSPs this year compared with last, many existing investors are planning to scale back the amount of their contributions.

Adrian Mastracci, a portfolio manager with KCM Wealth Management Inc. in Vancouver, agreed that most people who already have RRSPs will continue to contribute to them, although many investors may simply have less money to throw around.

"I hope to be wrong, of course, but I think we will have lesser deposits than previously," Mastracci said.

"The good thing is at least you can carry them forward and make them later, but I think for this year, it's going to be a tight year."

RRSPs are a tax-deductible way to save for retirement. For the 2008 tax season, investors have until Monday to contribute up to 18 per cent of the income they earned in 2007 to a maximum of $20,000.

If an investor contributes less than the maximum allowable, the balance is carried forward indefinitely, allowing people to make up for years in which they didn't want to -- or weren't able to -- make the full contribution.

Contributions are tax-deductible until the money is withdrawn, and can include cash, stocks, bonds, mutual funds, GICs and other investment vehicles. As well, income earned from RRSP investments is not taxed, unlike other investments.

Sue Neal, a regional director with Investors Group in Toronto, said the tax deductions offered by an RRSP are still "very much on the radar" of investors, but many are putting their RRSP contributions in safer vehicles until the markets start to rebound.

"What we are seeing is that they may start off in more of a money market account and gradually get into the market through regular instalments, maybe over the next year, taking advantage of the fluctuating prices," Neal said.

Neal said she counsels her clients to "remove the emotions" they may be feeling after markets plunged sharply in the last part of 2008, costing many Canadians a big chunk of their net worth.

The Toronto stock market has lost more than 45 per cent of its value from its record high above 15,000 last spring, wiping out about $900 billion in the value of shares traded on Canada's dominant exchange.

Neal described the current equities market as a "now-or-never sale" and advises clients to regularly move part of their RRSP contribution into a more balanced portfolio that includes stocks, no matter how scary that may seem now.

However, some investors, particularly those in a low tax bracket, may see more benefit in putting their money into a tax-free savings account, Mastracci said.

The federal Conservative government unveiled the concept last year, offering Canadians aged 18 or older an account where they can contribute up to $5,000 each year and allow it to grow tax-free as a way to boost savings in the economy.

Unlike RRSPs, money in TFSAs can be withdrawn at any time without being taxed. Investments in the accounts can include stocks, mutual funds and savings bonds.

"For some people, the TFSA is a better way to go initially, especially if they're starting out, if they're in a low marginal tax rate or they need to accumulate an emergency fund," Mastracci said.

Neal said that no matter how her clients want to save for retirement, she always counsels them to have variety in their portfolio, including a registered component, like an RRSP, and a non-registered component, like a TFSA.

"Even before the TFSAs, we talked a lot about having a non-registered component for trips and cars and any large purchase during retirement, so now this has just added to our conversation," she said.

And no matter how you decide to invest down the road, Mastracci reminded investors that you can still beat the 2008 RRSP contribution deadline even if you're not comfortable with making a major investment decision right now.

"Given that the markets are doing what they are right now, don't feel pressured to make the investment decision right now, just put the money into a 30-day GIC or a 60-day or whatever," he said.

"That's probably the best advice I can give right now ... just get the money in and then take a month or two or three to figure out what you have to do."

Both Mastracci and Neal said they will be contributing the full amount to their RRSPs this year and will be making relatively cautious investments to beat the markets.