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!