Don’t hate me cause I’m a manic maxer. A manic maxer is a term I just invented to describe those crazy lot who max out their RRSP (or 401K) in January, at the beginning of the tax year. So, if you’re looking to contribute to your RRSP in January 2008 for tax year 2008, then you too are a manic maxer.

Most people reading this are probably rolling their eyes and saying something like…

“But I’m still catching up on my 2007 RRSP contribution in January 2008. What kind of weirdo are you?”

OK, so I am a little bit weird. I haven’t always been a weird manic maxer though. It took me a few years of contributing my hard-earned RRSP dollars until I figured out what a huge advantage there is to contributing at the beginning of the tax year.

Here are 3 reasons why you should become a manic maxer:

1. Earn extra compound interest:

By contributing a year in advance, you benefit from an extra year of compound interest. For example, lets say you contribute $6500 to an RRSP at the beginning of the tax year and earn 6% interest. By the time everyone else contributes at the end of the tax year, you’ve already earned $390 in tax-deferred growth. Don’t think that sounds like much? Well, it is if you compound that extra little bit by 20-30 years! These little drops of tax-deferred dollars really add up when you look at the big picture!

2. Get your tax refund today:

Manic maxers get a huge tax advantage, they get their tax refund today and not in April like everyone else. Getting your refund today has the added advantage of helping you:

• Make an extra mortgage payment.
• Pay down debt.
• Make additional non-registered investments and earn more compound interest.

Besides, waiting till April for a big fat tax refund is like giving the government an interest free loan. I wrote an article on how to stop giving the government a interest free loan by submitting form T1213.

3. Retire sooner:

I plan to retire sooner since I employ my manic maxer strategy. I figure, if I keep contributing at the beginning of each tax year for 20ish years, I’ll earn (hopefully) the equivalent of one year of early retirement just with additional compound growth. I basically see this strategy as giving me a free year of retirement JUST from planning and saving for my contribution in January.

Tip: Need to figure out how much space you have to start monthly RRSP contributions? Find the contribution limit on your income tax assessment, divide that by 12, and arrange for automatic monthly contributions with your RRSP provider. This strategy will also bring you closer to maximizing your compound growth.