Updated: Feb 13, 2020
Can you make up for lost time? When it comes to contributions to your Registered Retirement Savings Plan (RRSP), the answer is YES!
We are in the stretch run of RRSP season with 38 days left till March 1, 2020, the deadline for contributions and top-ups for your 2019 tax return.
Most Canadians are unaware of that they’re likely carrying over a substantial sum of unused RRSP room. If you didn’t maximize your RRSP contributions in the past, you have the opportunity to fast forward your retirement plan by investing the full amount of your contribution limit, which includes all of your unused contribution room. Not only will you be saving for your retirement, but you may also receive a large tax deduction.
For example, if the Canada Revenue Agency Notice of Assessment that you received after filing your previous year’s tax return advised that you could contribute $13,000 for the current tax year, but you only contributed $3,000, you can still contribute the remaining $10,000 at any time.
Just consider for a moment that if you make up for lost RRSP time sooner, how much further ahead your retirement plan could be:
• Assuming you have 20 years left to retirement, the $10,000 additional contribution could grow to $46,600 on a pre-tax basis (assuming an average annual rate of return of 8%).
• Plus, if you’re marginal tax rate is 40%, your $10,000 contribution will generate immediate tax savings of $4,000. Reinvest these tax savings in a Tax-Free Savings Account (TFSA) or use the savings to pay down an RRSP loan debt and you will be even farther ahead financially.
Here's a simple calculator to help determine the break-even for borrowing to invest in your RRSP.
If you need help determining your optimal loan amount, give us a shout!