Maximize your annual contribution
You have saved up $2,000 for your RRSP contribution and are in a 40% tax bracket. You have two options:
1- You can contribute the $2,000 to your RRSP, in which case you will receive an $800 income tax refund that can also be invested in your RRSP. You will therefore have $2,800 in total savings.
2- You can take out an RRSP loan in order to maximize your RRSP contribution, so that you can repay your loan with your income tax refund, as follows:
RRSP contribution X tax rate = RRSP financing = = tax return
(1- tax rate)
Soit : $2,000 * 40% $1,333.33
As a result:
- You will increase your contribution by $1,333.33 instead of $800
- You can repay your loan in full with your tax return
- You will have contributed $3,333.33 to your RRSP rather than $2,800
- You will enjoy the financial benefits that come with making higher contributions, which makes all the difference at retirement time!
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